What is Fiscal Sponsorship?

About Fiscal Sponsorship

Fiscal sponsors are tax-exempt, charitable ventures that, according to a 2012 IRS report “have the ability to receive charitable contributions for specific projects, the infrastructure to ensure compliance with applicable federal and state laws and adequate internal controls to ensure that the funds will be used for the intended charitable purposes.”  Simply stated, fiscal sponsors place responsibility for implementing programs in the hands of project leaders while ensuring appropriate fiduciary oversight.

Fiscal sponsorship has evolved as an effective and efficient mode of starting new nonprofits, seeding social movements, and delivering public services. Fiscal sponsorship organizations are well-positioned to assist and support the existing nonprofit sector.

They bring collaboration, operational efficiency, and economies of scale to the programs and nonprofits they serve.

What Are the Benefits of Fiscal Sponsorship?

  • Projects can launch quickly, without having to file for 501(c)(3) status.
  • Receive tax-deductible donations before obtaining tax-exempt status.
  • Newly founded projects have time to incubate without having to invest in infrastructures such as staff, accounting/bookkeeping, and fundraising capabilities.
  • Alleviate donor wariness to funding start-ups.
  • Projects can be limited in duration by design, such as disaster relief.
  • Fiscal sponsors can offer economies of scale for many services. By pooling resources, projects are able to affordably access liability protection, health insurance, and legal counsel.

Learn about the services provided by Humanitarian Social Innovations.

APPLY NOW

The History of Fiscal Sponsorship

The story of fiscal sponsorship began in 1954 with the creation of the 501(c)(3) tax code, which grants tax exemption to “Organizations organized and operated for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or for the prevention of cruelty to children or animals.” Five years later, the Massachusetts Health Research Institute took on their first sponsored project, making them the first fiscal sponsor. The fiscal sponsorship movement then grew through the 1960s in tandem with the free-services-for-all movement in California, which had created a large number of community projects in need of financial management.

Without well-established guidelines, however, the nonprofit sector saw a good number of sponsorship pitfalls. Sponsors would sometimes lose their 501(c)(3) status by handling transactions incorrectly, and the projects they sponsored would be left to fend for themselves. On occasion, sponsored projects would use their money for non-tax-exempt reasons, also leading to the sponsor’s loss of tax-exemption. An example of the latter case occurred during the election of 1984. In the aftermath, the Council on Foundations published John Edie’s essay: “Fiscal Sponsorship: A Trap For The Unwary”.

All the confusion over the years created the need for a comprehensive “instruction manual” on fiscal sponsorship. So in 1993, Gregory Colvin published “Fiscal Sponsorship: Six Ways To Do It Right”. Then in 2004 the Tides Center brought together eight fiscal sponsors, known as the Steering Committee, and created the National Network of Fiscal Sponsors. The NNFS is a group that provides resources and information to those seeking fiscal sponsorship, as well as guidelines to fiscal sponsors for how they should conduct business.

Today there are over 300 fiscal sponsors in the United States alone, covering a variety of charitable disciplines. Sponsored projects can be sure that NNFS members practice fiscal sponsorship according to network guidelines. With the help of a fiscal sponsor, projects of all types of sizes can accomplish greater things.

How Can I Learn More About Fiscal Sponsorship?

Our Resources page contains several articles, web resources, and videos that you can access for a deeper dive into fiscal sponsorship.
Below are some excerpts from these articles.

 

“[The] earliest stage of new nonprofit ventures is not just highly time-consuming and demanding of ample commitment from the nonprofit entrepreneur but also the most fragile stage in a nonprofit’s life.”

Fiscal Sponsorship: A Hidden Resource for Nonprofit Entrepreneurs

“…fiscal sponsorship may be a very attractive alternative to formation of a nonprofit, particularly where the sustainability of a separate entity is highly questionable or the charitable endeavor has a relatively short life span. Sponsors often serve as incubators of Projects that later spin off upon a determination by their respective Project Initiators that they can govern and operate sustainable independent organizations.”

Alternatives to Forming a Charitable Nonprofit

“Fiscal sponsorship is an option that may be available to a person, group, or business to attract charitable funding without starting a nonprofit. It may allow an individual artist to fund the creation of a mural, a group to hold a crowdfunding campaign for pediatric cancer research, or a manufacturer to create and distribute products to regions devastated by a recent natural disaster.”

Fiscal Sponsorship: A Balanced Overview

“Why might conversation about fiscal sponsorship be particularly important right now? In a time of active experimentation in terms of programs and organizational form, and in a context of some turbulence, the ability to test ideas without setting up formal organizations to hold them becomes increasingly important.”

Fiscal Sponsorship: A Response to the Overinstitutionalization of the Civil Sector

“Not everyone is quick to believe that formal nonprofits are the right choice. More important, many are raising concerns that a 501(c)(3) status is the wrong choice for some groups”

To 501(C)(3) Or Not To 501(C)(3): Is That The Question?