Fiscal sponsorship is a business model — almost six decades old — that exponentially expands the charitable work of the nonprofit sector efficiently and cost-effectively.
Any nonprofit agency deemed an exempt public charity by the Internal Revenue Service can be a fiscal sponsor for a nonexempt community project. The charity must have been awarded its tax-exempt status under Section 501(c)(3) of the Internal Revenue Code and have a legally binding agreement with the project. With that agreement, the fiscal sponsor can receive gifts and grants for that project and provide donors with evidence of their tax-deductible contribution — a game changer that encourages donations for valuable community projects.
"The charity must be in the controlling position, and the nonexempt project must act so as to further the charity's exempt purposes." That is the essence of the contractual fiscal sponsor-sponsored project relationship, according to attorney Gregory Colvin in his transformational book, "Fiscal Sponsorship: 6 Ways to Do It Right."
Besides providing numerous benefits to the sponsored project and the community it serves, fiscal sponsorship can be practiced under various models, all approved by the IRS. The bottom line is the binding relationship among donor, fiscal sponsor and project.
Here's how the experts describe fiscal sponsorship
"(Fiscal sponsorship is) an arrangement between a 501(c)(3) public charity and a project (that does not have that tax status) in which, typically, the charity receives and expends funds to advance the charitable work of the project while retaining discretion and control over the funds."
– Eric Gorovitz, associate, Adler & Colvin
"Fiscal sponsors are nonprofits that enable the movement of money from funders to projects, ideas, organizations, and activities. While our models and missions differ, we have common questions and aspirations to ensure responsible use of the tool of fiscal sponsorship. We are committed to raising the understanding of fiscal sponsorship among the public and funders, we share a desire to build best practices, and we enhance the sector by building capacity to advance public benefit."
– National Network of Fiscal Sponsors
"Calling a charity a 'fiscal agent' implies that the project controls the charity. To comply with tax-exempt law, the relationship must be the reverse; the charity must be in the controlling position, and the nonexempt project must act so as to further the charity's exempt purposes. Fiscal sponsorship is the more accurate term. It implies, correctly, that the charity has made a choice to support the nonexempt project financially."
– Gregory L. Colvin, Fiscal Sponsorship: 6 Ways to Do It Right. 2nd ed. Study Center Press, 2005