Services include human resources, financial management, tax preparation, grant support, risk management, legal counsel, coaching, and online donation management. Successful fiscal sponsorship relationships require ongoing communication, clear expectations, and mutual commitment to the shared mission. Both sponsors and sponsored projects benefit from regular review of the arrangement to ensure it continues serving both parties effectively. Under this model, the sponsored organization maintains more independence while still benefiting from the sponsor’s tax-exempt status.
When a nonprofit becomes a fiscal sponsor, it takes responsibility for activities put on or conducted by the beneficiary. When you partner with a cause to be its fiscal sponsor, you must ensure you operate within your mission. Determine the goals for your sponsorship and what metrics both parties will use to measure the success and duration of the project. Fiscal sponsorship is practiced with many different models, which offer different benefits. Nevertheless, it is important for both sponsors and projects to understand the exact nature of their relationship.
Get tailored fundraising ideas—free AI tool!
Proper insurance coverage must extend to all sponsored activities, and carriers may require disclosure of fiscal sponsorship arrangements during the application process. The sponsor assumes complete responsibility for financial management, tax compliance, insurance, and employment matters. The sponsor NFP accounts for the sponsored project or activity as one of its own activities, with assets and liabilities reported on the balance sheet of the sponsor NFP. This arrangement works best for projects that need extensive administrative support and want to minimize operational overhead. Fiscal sponsorship models have emerged as a critical alternative for organizations seeking to launch charitable initiatives without navigating the complex process of obtaining independent 501(c)(3) status.
Research the organizations you’d be sponsoring
- They’re responsible for all the project’s financial management, including government forms, fund disbursement and all reporting.
- Every day, people come up with creative ideas for starting a mission-driven charitable project.
- This helps newer nonprofits gain credibility, showcase their work, and build trust more effectively.
- Fiscal sponsorship is a relationship in which an unincorporated group or project seeking to carry out charitable activities affiliates with an existing 501(c)(3) nonprofit organization that shares a compatible mission.
Jo-Anne Williams Barnes, is a Certified Public Accountant (CPA) and Chartered Global Management Accountant (CGMA) holding a Master’s of Science in Accounting (MSA) and a Master’s in Business Administration (MBA). Jo-Anne is a certified Sage Intacct Accounting and Implementation Specialist, a certified QuickBooks ProAdvisor, an AICPA Not-for-Profit Certificate II holder, and Standard for Excellence Licensed Consultant. Don’t hesitate to contact us at any time if you need assistance in completing the application. Discover how XO Marriage used Anedot to enhance donor experience and boost organizational efficiency. But there can also be a significant amount of red tape for sponsors to wade through. Sponsors should vet potential directors as they would for an internal leadership position, including interviews, background checks, and references.
Get in touch with your potential sponsor.
That’s not the best way for a number of reasons, including transparency, accountability, and potential tax issues for those operating the project. In today’s landscape of shrinking global aid and rising barriers to funding, fiscal sponsorship offers a critical bridge. It allows local leaders—especially women and girls—to gain access to funding streams that would otherwise be closed off.
Understanding Fiscal Sponsorship Models: A Strategic Path for Emerging Nonprofits
Communicating is essential in any partnership, especially within a fiscal sponsorship relationship. Below we explore essential fiscal sponsorship practices for nonprofits entering the role. Work with the sponsor to create a detailed agreement outlining roles, responsibilities, financial management, and dispute resolution procedures or termination procedures. A thorough agreement reduces misunderstandings and ensures both parties remain aligned throughout the partnership. Review the sponsor’s policies, legal obligations, and compliance history to ensure they remain in good standing as a tax-exempt organization. Check for any past fund management or reporting issues that could indicate potential risks.
risks of fiscal sponsorship for nonprofits
Fiscal sponsorship may be a faster and more affordable way to get the benefits of 501(c)(3) nonprofit status. Learn the true fiscal sponsor definition, how it works, and how it can benefit your organization. What strategies for awareness and service growth could increase funder portfolio allocation to fiscal sponsorship?
Donors wishing to support the activity give directly to the sponsoring organization, designating their gift to the activity. Tax-deductibility of the gift is provided fiscal sponsorship for nonprofits by the fact that the sponsor has 501(c)(3) status. When thinking about the year ahead, the majority of survey respondents cite concerns around raising funds and think it will be difficult to raise as much money in 2025 as they did the previous year.
Fiscal sponsorship lets younger, smaller initiatives benefit from the infrastructure of an established nonprofit. Instead of getting sucked into the process of starting an organization from scratch, they can focus entirely on their mission and decide if going the full nonprofit route is right for them. Anecdotal support for increasing interest in fiscal sponsorship is also relatively easy to find.
- The two most widely used models of fiscal sponsorships are comprehensive and pre-approved grants.
- Annual reporting can work, but doesn’t provide the visibility truly necessary for compliant oversight.
- Proper financial management represents a core responsibility for fiscal sponsors and requires careful attention to accounting practices and compliance requirements.
- A fiscal sponsor can be any established nonprofit organization with tax-exempt status under section 501(c)(3) of the IRS code in the United States.
- This allows the fiscal sponsor to have sufficient control and discretion over the project to treat it as an internal and integral part of the fiscal sponsor like any internal program or division of a charity.
FOLLOW US ON SOCIAL
Managing expectations promotes a positive and productive relationship that helps both parties work together to achieve the project goals. It’s an effective way to cultivate partnerships with like-minded causes and grow the sponsor’s support base. With the agreement in place, begin the partnership by familiarizing yourself with the sponsor’s systems, policies, and staff. Establish regular communication channels, such as scheduled meetings or check-ins, to maintain transparency and alignment. For example, if your nonprofit thrives on dynamic, fast-paced decision-making, but the sponsor has a highly formal and bureaucratic process, this could lead to delays and misalignment. Consider the sponsor’s culture, communication style, and decision-making process to ensure a good fit.
We bring communities together to share the resources needed to build a just and flourishing society.
Nonprofit discounts are often exclusively for organizations who have their own 501(c)(3) status. Fiscally sponsored organizations will also have to pay things like sales tax, which many states allow nonprofits to complete a form to avoid. Fiscal sponsorship enables a program or organization that does not itself qualify as tax-exempt to attract funding for its operations that will be tax-deductible to donors through the fiscal sponsor. The sponsoring organization serves as the administrative home, receiving charitable contributions and ensuring proper financial management while the sponsored project focuses on mission delivery. Fiscal sponsorship is a relationship between an established nonprofit and another organization or project that doesn’t have its own tax-exempt status just yet. In this arrangement, the fiscal sponsor provides administrative support that lets the sponsored project operate under its sponsor’s nonprofit status.
You can also check out our article on software for nonprofits to discover the most effective tools for managing your processes with ease. Attract much-needed corporate sponsors with this step-by-step guide, writing tips, and three templates to streamline your outreach. How to create your superstar team and assign the right Givebutter roles to unlock your team’s full potential—without risking donor data or burnout.
There are two basic modules of fiscal sponsorship which include comprehensive fiscal sponsorship and pre-approved grant relationship fiscal sponsorship. Becoming a 501(c)3 organization also requires that the nonprofit pay local, state, and federal fees. Since the process can be expensive and lengthy, fiscal sponsorship provides the opportunity to raise funds in the meantime.