Earlier this month, at the American Bar Association Fall Tax Meeting, the San Francisco Study Center released the 3rd edition of Fiscal Sponsorship: Six Ways to Do It Right, authored by Greg Colvin and Stephanie Petit. This is a complete revision of the seminal book on relationships it coined fiscal sponsorship and should be available soon at the Study Center website.
Fiscal sponsorship arrangements typically arise when a person or group with a new charitable idea (we will call this a project) wants to get support from a private foundation, a government agency, or tax-deductible donations from individual or corporate donors. By law or preference, the funding source will make payments only to organizations recognized by the IRS as tax-exempt under Section 501(c)(3). So the project looks for a 501(c)(3) sponsor to receive the funds and use it to support the purposes of the project.
The book is a must-read for all fiscal sponsors, leaders of projects that are fiscally sponsored, and advisors to either sponsors or project leaders. There are very specific and particular characteristics of entering into a fiscal sponsorship arrangement that lawfully works as intended. While there are certain variations possible, others are not. We sometimes see parties try to blend different models of fiscal sponsorship, and that often leads to trouble. Legal and accounting advice from professionals who are well-versed with fiscal sponsorship may be critically important in the establishment, review, or modification of a fiscal sponsorship program.
Our friends Greg and Stephanie, attorneys at Adler & Colvin, describe six models of fiscal sponsorship and highlight how they can work for different types of projects. The two most popular models are Model A (Direct Project, also referred to as Comprehensive) and Model C (Pre-Approved Grant Relationship). And for the first time, the new edition of the book includes Model L (Single Member Limited Liability Company).
Model L (Limited Liability Company) replaces Model E [Supporting Organization] as the new fifth model presented in this book because of new IRS rules favoring a 501(c)(3) fiscal sponsor that serves as the single member (sole owner) of a charitable LLC. The single-member LLC (SMLLC) is treated as part of the sponsor (much as in Model A) for IRS tax-exempt reporting purposes, but it can receive tax-deductible donations and grants in its own name, somewhat like a subordinate organization under a Model D group exemption. The SMLLC structure is able to protect the sponsor from liability for the activities of the project due to its existence as a separate legal entity.
For nonprofit and exempt organizations attorneys well-versed with the previous editions of the book, the Postscript and Appendix are more than worth the purchase price for the book (the proceeds of which go to the Study Center). They include discussions of legal rulings, cases and guidance; intellectual property issues; outlines of suggested and optional provisions to include in fiscal sponsorship agreements; and the possible application of donor-advised fund rules.
Many thanks to Greg and Stephanie for devoting so much time and effort to producing Fiscal Sponsorship: Six Ways to Do It Right, which will no doubt provide impactful guidance to the proper structuring of thousands of charitable projects throughout the country. And thanks for the shout out of our blog (and for the “Project Committee” reference)!