Choosing a Fiscal Sponsor

A fiscal sponsorship is often a great idea for small charities that do not have the resources to apply for their own tax-exempt status. It allows them to receive tax deductible donations from donors to accomplish their mission without having to expend their resources on administrative duties. However, as the recent International Humanities Center scandal has shown, it can be dangerous to get into bed with a fiscal sponsor without first performing some basic due diligence.

Nonprofit Jargon Buster Fiscal Sponsorship vs. Fiscal Agency

The term “Fiscal Sponsorship” describes an arrangement between a non-profit organization with 501(c)(3) tax exempt status and a project, often a new charitable effort, conducted by an organization, group, or an individual that does not have 501(c)(3) status. Fiscal sponsorship permits the exempt sponsor to accept funds restricted for the sponsored project on the project’s behalf. The sponsor, in turn, accepts the responsibility to ensure the funds are properly spent to achieve the project’s goals. This arrangement is useful for new charitable endeavors that want to “test the waters” before deciding whether to form an independent entity as well as temporary projects or coalitions that are looking for a neutral party to administer their funds.