A fiscal sponsorship is a type of relationship that a sponsored project (often a new charitable endeavor organized by an individual or group of individuals) has with its fiscal sponsor, typically conferring upon the project the benefit of the sponsor's 501(c)(3) tax-exempt status and certain administrative services. There are several models of fiscal sponsorship. Accordingly, it is important for a sponsor and its project to understand the exact nature of their relationship.
From the sponsor's perspective, it is essential to ensure that the activity of sponsoring a particular project is done in furtherance of its own exempt (e.g., charitable) purposes. Before entering into a fiscal sponsorship relationship, the sponsor should also be aware of its exposure to liability for the actions of its project.
From the project's perspective, it is important to recognize that commonly the project will be the under the control of its sponsor, which may be legally responsible for the operations and activities of the project. The benefits of immediate tax-exempt status and administrative support must be weighed against the lack of autonomy and fees typically charged by the sponsor.
Fiscal sponsorships may be a very attractive alternative to formation of an independent tax-exempt entity where the immediate viability of a separate entity is questionable or the charitable endeavor has a relatively short-term. Often, projects "test the waters" through fiscal sponsorships before they determine whether to become independent tax-exempt entities.
Read more about fiscal sponsorships at the following sites:
Nonprofit Genie FAQs - Fiscal Sponsorship, CompassPoint Nonprofit Services
Guide to Fiscal Sponsorship, Foundation Center
FiscalSponsorship.com, San Francisco Study Center
- You can order Greg Colvin's book "Fiscal Sponsorship - 6 Ways To Do It Right" at this site. I consider this book essential reading for organizations that are contemplating fiscally sponsoring projects and recommended reading for groups looking to become fiscally sponsored.