CCT: Fiscal Sponsorship

Fiscal Sponsorship


What is Fiscal Sponsorship?

A fiscal sponsorship is an arrangement in which a tax exempt 501-c-3 entity agrees to share its tax exempt status with another entity or project.  The “sponsor” agrees to accept donations on behalf of the entity or “project” that is not tax exempt, allowing the project or entity to apply for grants and accept tax deductible donations through the fiscal sponsor.  In many cases, the fiscal sponsor charges an administrative fee for its services, which is generally calculated as a percentage of the budget of the project or program.  Any 501-c-3 tax exempt organization can serve as a fiscal sponsor.  You can identify potential sponsors by finding organizations whose mission is closely aligned with your project’s mission.  In addition to potential local sources, there are numerous national organizations that specialize in fiscal sponsorship services (links below).


How Does Fiscal Sponsorship Work?

You must find a fiscal sponsor for your project before you apply for a grant.  The fiscal sponsor agrees to accept administrative responsibility for receiving charitable gifts on behalf of the sponsored project or program.  First, the sponsor must determine that serving as fiscal sponsor for your project is consistent with its mission and will therefore not jeopardize its own tax exempt status.  Legally, the fiscal sponsor maintains full discretion and control over the project funds and has the right to withdraw financial support from the project if the original agreed-upon goals are either not being accomplished or are not being followed.  The fiscal sponsor monitors the project to insure that funds are properly spent.  The sponsor also maintains records establishing that the project funds were used only for exempt purposes and toward the furtherance of the fiscal sponsor’s 501-c-3 mission.  The sponsor’s board of directors must determine that the project’s mission is in keeping with the fiscal sponsor’s own mission.  The fiscal sponsor assumes total legal responsibility for the project and reviews, approves and signs all contracts and leases on behalf of the project.  Until the sponsorship arrangement concludes, the project is not a legally separate entity.


What services are provided by the Fiscal Sponsorship?

Fiscal sponsorships should be tailored to the specific project’s needs.  Services may include administrative and office support, payroll services, fund raising assistance, insurance coverage, accepting tax deductible donations and issuing confirmation letters to donors and filing all necessary IRS reporting.


Formalizing an Agreement between the Project and the Fiscal Sponsor

The terms of a fiscal sponsorship should be clarified in writing and reviewed by an attorney.  Following are some points that might be considered in creating a written agreement or memorandum of understanding:

  • Project funds should be maintained by the sponsor in a separate account to insure segregation of funds.
  • Require a process of formal documentation to confirm all project expenses before the sponsor can release project funds.  What type of supervision will the sponsor require regarding project activities and decision-making?
  •  What kind of reporting will the sponsor require of the project, including the extent and frequency of such reports?
  • Who will be responsible to write grant proposals or how will such tasks be responsibly shared?
  • Clarify fiscal sponsorship administrative fees, if any.  Such fees are usually based on a small percentage of the donations received on behalf of the project (5-10% are typical and can range higher dependent upon the scope of services provided).  Clarify other services that the sponsor will provide, such as office space, grant writing, technical assistance, etc.
  • Will project staff work for the project or work as employees of the fiscal sponsor?
  • What will be the length of the sponsorship agreement?
  • Whose insurance will cover project activities?
  • Establish a conflict of interest policy to insure that members of the sponsor’s board of directors, paid and volunteer project leaders, and any project advisors or staff avoid actual or apparent conflicts of interest.
  • Consider how potential disputes will be resolved during the fiscal sponsorship.
  • How will the project end?  What agreements or steps may be needed to separate from the sponsor and terminate the project?

Additional Resources

The following information may help you to design a successful fiscal sponsorship relationship:

Content Last Modified on 4/10/2015 12:32:59 PM