Fiscal sponsorship is a legal and financial arrangement that allows an organization (the sponsored project) to operate under the tax-exempt status of another organization (the fiscal sponsor). This arrangement helps nonprofits and social impact projects access the benefits of 501(c)(3) status without having to establish their own separate nonprofit entity.
ImpactGraph is the first solution designed to support both fiscal sponsors and sponsored organizations in a simple, unified experience to save administrative hassle.
Key Benefits of Fiscal Sponsorship:
Tax-Exempt Status: The fiscal sponsor extends its tax-exempt status to the sponsored project, allowing donations to be tax-deductible.
Administrative Support: Fiscal sponsors often handle key operational functions such as accounting, compliance, and insurance, allowing the project to focus on its mission.
Grant Eligibility: Many foundations and donors require recipients to have 501(c)(3) status. Fiscal sponsorship enables projects to apply for these grants without being a registered nonprofit.
Legal and Financial Oversight: Fiscal sponsors ensure that sponsored projects follow legal and tax regulations, helping reduce administrative burden for the project.
How Does Fiscal Sponsorship Work?
Agreement: A formal agreement is signed between the fiscal sponsor and the sponsored project. This outlines the responsibilities of both parties, including how funds are managed and how reporting is handled.
Fund Management: The fiscal sponsor typically manages all donations and grants received by the sponsored project. Funds are deposited into the fiscal sponsor’s account and disbursed based on the project’s needs.
Project Independence: While the fiscal sponsor provides oversight, the sponsored project generally maintains control over its day-to-day activities and programmatic decisions.
Administrative Fees: Fiscal sponsors usually charge a fee (often a percentage of funds raised) for their services, covering administrative, legal, and financial support.
Types of Fiscal Sponsorship
There are many, but primarily we support the two major types of fiscal sponsorship:
Comprehensive (Model A): The fiscal sponsor takes full responsibility for the project, integrating it into their own operations. The project’s activities are treated as part of the fiscal sponsor’s mission and operations.
Pre-Approved Grant (Model C): The project remains independent but receives grants through the fiscal sponsor. The fiscal sponsor provides less administrative support but acts as an intermediary for funds.
Who Should Consider Fiscal Sponsorship?
Fiscal sponsorship is ideal for:
New or Small Projects: Startups or initiatives that do not yet have the capacity or resources to become a standalone nonprofit.
Temporary Projects: Initiatives that are short-term or project-based and do not require a permanent nonprofit structure.
Nonprofit Transitions: Groups exploring nonprofit formation but wanting to test their impact or fundraising capacity before committing to full 501(c)(3) status.
Independent 501c3s: If you're looking to have a shared service handle your legal, accounting, and tax needs
How to Find a Fiscal Sponsor
We're happy to help you find one! Here are some things to think about when selecting the right sponsor:
A mission aligned with your project.
Clear fee structures and administrative services.
A history of successful partnerships with other projects.
Helpful Resources to Learn More
Here are some additional resources to help you dive deeper into fiscal sponsorship:
National Network of Fiscal Sponsors (NNFS)
www.fiscalsponsors.org
A community for best practices, tools, and education on fiscal sponsorship modelsFiscal Sponsor Directory
https://fiscalsponsordirectory.org/A great resource to find and learn about the different types of sponsors
Books: “Fiscal Sponsorship: 6 Ways to Do It Right” by Gregory L. Colvin
A comprehensive guidebook covering the legal and practical aspects of fiscal sponsorship