STARTING A NONPROFIT: 7 BENEFITS OF FISCAL SPONSORSHIP


By James D’AmbrosioJamesProfile1Twitter

At one time or another, many have had the enthusiasm to start a nonprofit, only to find it time-consuming and complex — creating a board of directors, filing for tax-exempt status, legal and accounting matters and incorporation, not to mention office space, equipment, etc. Working with a fiscal sponsor can ease the process.

FISCAL SPONSORSHIP — A BRIEF OVERVIEW  

Information from The National Council of Nonprofits and United Charitable Programs provides guidance:

In broad terms, fiscal sponsorship is when a new nonprofit — not yet tax-exempt — joins with an established 501(C)(3) tax-exempt nonprofit (preferably with a similar mission) to facilitate development. The sponsor handles many administrative tasks for a fee, usually a percentage of the new agency’s budget. The sponsor serves as the official recipient of charitable donations and has complete authority over how those funds are used. (The IRS approves as long as the sponsor maintains authority to determine how donated funds are used; generally, funding the new agency.)

Details of the arrangement are outlined in a written agreement between both organizations indicating the sponsor is responsible for all legal compliance related to receiving, reporting and acknowledging charitable donations, along with the fee the new agency will pay to the sponsor. (It can help to partner with a nonprofit dedicated to fiscal sponsorship that has a portfolio of projects.)

BENEFITS OF A FISCAL SPONSOR

1. SAVES TIME & MONEY: No IRS forms or additional registrations to file; no accounting/legal staff to pay.

2. SPONSORSHIP APPLICATION: Takes just weeks to approve.

3. PROJECT NOT JUST AFFILIATED: It becomes part of the sponsoring organization.

4. NO BOARD NEEDED: Your project is governed by the board of the sponsor.

5. LEGAL ASSISTANCE: The sponsor is legally responsible for the new project.

6. FUNDRAISING: Donors cannot receive a tax deduction for contributions to a nonprofit that is not tax-exempt, and guidelines of most private foundations explicitly require grantees to be recognized as tax-exempt by the IRS.

7. GAIN EXPERIENCE: Learn about nonprofit management and board governance from an established nonprofit.

EXPERIENCED PROFESSIONALS WEIGH IN

Melanie Beene, president & CEO of Community Initiatives and a leader in the field, says fiscal sponsorship “…is a cheaper, faster, easier and more efficient alternative to launching your charitable activity than trying to set up a 501(c)(3) corporation yourself. A fiscal sponsorship arrangement can give you time to see if your idea works, and it can also provide confidence to potential funders who are often reluctant to provide support to brand new nonprofits.”

Daniel Moretti, former operations director at Active Voice, discusses its partnership with Community Initiatives: “I can deeply appreciate the value of a fiscal sponsor. We are saved from worrying about managing labor-intensive financial processes such as an audit, and we don’t get sucked into many time-consuming human resources tasks such as setting up benefits or administering payroll. This not only allows us to have more time to focus on our programmatic work, but it also provides us with a clearer head to do so knowing that the important back-end work is taken care of.”

ADDITIONAL RESOURCES & INFORMATION

TIDES FOUNDATION:

NATIONAL NETWORK OF FISCAL SPONSORS: 

FINDING A FISCAL SPONSOR

FISCAL SPONSORSHIP FIELD SCAN

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QUESTIONS TO READERS:

a) What do you think about fiscal sponsorship? b) Any experiences to share?

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