Yesterday, I had the honor of participating on a panel discussing fiscal sponsorship at the 2014 Grantmakers in the Arts 2014 Conference in Houston. Frances Phillips (Walter and Elise Haas Fund), Melanie Beene (consultant, former CEO of Community Initiatives), and Ian David Moss (Fractured Atlas) were my co-panelists, and we were joined by a very vocal group of attendees who made the session one of my favorites. The following post is from a handout we distributed at the session.
Fiscal sponsorship describes a number of varying contractual relationships that have through custom and practice developed between “sponsors” and “projects,” making it possible for charitable projects to receive grants and deductible contributions without having their own 501(c)(3) status. These relationships can help facilitate grantmakers’ support of worthy arts projects that are not suited for independent legal existence as public charities. But the health of the sponsor and the structure of the fiscal sponsorship agreement are critical to ensuring that your grants are made appropriately and in compliance with applicable laws.
Most common forms of fiscal sponsorship
The two most common models of fiscal sponsorship are referred to as comprehensive (Model A) and the pre-approved grant relationship (Model C). The National Network of Fiscal Sponsors (NNFS) provides the following definitions:
In a Comprehensive Fiscal Sponsorship relationship, the fiscally-sponsored project becomes a program of the fiscal sponsor, and is a fully integrated part of the fiscal sponsor that maintains all legal and fiduciary responsibility for the sponsored project, including its employees and activities. This model of fiscal sponsorship is particularly valuable when a project has employees.
Pre-approved Grant Relationship
In a Pre-Approved Grant Relationship Sponsorship, the fiscally-sponsored project does not become a program belonging to the sponsor, but is a separate entity responsible for managing its own tax reporting and liability issues. In addition, the sponsor does not necessarily maintain ownership of any part of the results of the project’s work—ownership rights may be addressed in the fiscal sponsor agreement and could potentially result in some form of joint ownership. The sponsor simply assures that the project will use the grant funds received to accomplish the ends described in the grant proposal. This is the model of fiscal sponsorship primarily utilized in the arts.
|Project is housed in sponsor||Yes||No|
|Project is housed in separate legal entity||No||Yes|
|Project employees||Employees of the sponsor||Employees of the project (sub-grantee)|
|Solicitations||By agents of the sponsor||By agents of the sponsor|
|Grants||To sponsor for purposes of the project (housed in sponsor)||To sponsor for purposes of the project; sponsor may, but is not required to, regrant to project (sub-grantee)|
An alternative to forming an independent charity
Having a charitable project fiscally sponsored by a sound and reputable fiscal sponsor may be an attractive alternative to starting a nonprofit, especially when:
- An idea is being tested or incubated.
- The project involves the work(s) of a single artist or collaborative group.
- The project leaders are inexperienced or otherwise not well prepared to manage the administrative needs of a charity.
- The project and/or funding is time sensitive.
Tips and traps for grantmakers
- Carefully vet the fiscal sponsor (your grantee), not just the project leaders.
- Check the fiscal sponsor’s articles/bylaws (consistency with grant purposes).
- Check the fiscal sponsor’s financials (e.g., negative unrestricted net assets).
- Review the fiscal sponsorship agreement (variance powers in Model C).
- Directing a grant to the project in a Model C fiscal sponsorship.
- Sending grants to Model A project leaders instead of the fiscal sponsor.
- Granting to a fiscal sponsor that acts as a mere conduit to another entity.
- Placing too much weight on overhead (incl. fiscal sponsorship fees).