What is a Fiscal Sponsor?

Fiscal sponsorship began in the 1950s as the nonprofit world evolved to meet the need created by a newly implemented tax code governing the sector. “A nonprofit is a kind of business,” said Marjorie Beggs, who manages the Fiscal Sponsor Directory at the San Francisco Study Center since 1977. “When I started at the Study Center, everything was manual. Now it all has to be automated and more people are scrutinizing it.” 

What is the purpose of a fiscal sponsor?

A fiscal sponsor is a nonprofit that shares its legal and tax-exempt status with groups or projects who don’t have 501c3 status. This can be a way for a new organization to receive funding while it builds itself up and works toward its own 501c3 status. Or it can be a way for donors to make tax-deductible contributions to a small or grassroots project that’s not a formal nonprofit. 

A fiscal sponsorship is a contractual agreement between the sponsoring organization and the sponsored group. The relationship is usually based on mission alignment—that is, a nonprofit chooses to fiscally sponsor other organizations or projects whose work aligns with their mission. 

Why choose a fiscal sponsor?

• Allows a nonprofit to share its legal and tax status with a smaller or newer organization or less formalized project.
• Allows a mission-driven project or emerging organization to receive donations even if they don’t have 501c3 status.
• Provides financial and administrative oversight and support. 
• Need support to explore new programs or rethink an organization.
• A nonprofit may be part of a collaborative, seeking shared management and risk.
• Save on operating costs while adding capacity for greater sustainability.
• By reducing overhead for new nonprofits, fiscal sponsors work to democratize nonprofit founding.
• Beyond receiving tax-deductible donations and redistributing them to the recipient, fiscal sponsors often provide an array of services and types of support to the projects they sponsor, including governance and financial oversight and administrative functions such as processing donor thank-you letters, financial reporting, and government filings. The fiscal sponsor almost always takes a fee for their services, which usually comes in the form of a percentage of the funds received for the sponsored organization. 

What other kinds of support does a fiscal sponsor offer?

Beyond receiving tax-deductible donations and redistributing them to the recipient, fiscal sponsors often provide an array of services and types of support to the projects they sponsor, including governance and financial oversight and administrative functions such as processing donor thank-you letters, financial reporting, and government filings. The fiscal sponsor almost always takes a fee for their services, which usually comes in the form of a percentage of the funds received for the sponsored organization. 

How do I find a fiscal sponsor? 

• Community foundations – Many community foundations serve as fiscal sponsors. Research community foundations in your geographic area to determine if any of them might be a good partner for your project.
• Intermediaries – There are also intermediaries in almost every field that provide fiscal sponsorship to like-minded organizations and projects as part of their mission. For instance, Rockefeller Philanthropy Advisors serves as fiscal sponsor for more than 100 projects and considers itself as one of the world’s largest philanthropic service organizations.
• Like-minded, established nonprofits in your focus area – You may also find a fiscal sponsor in an established nonprofit working in your field—especially one with which you already have a relationship and values what your project is bringing to the table.

Final Thoughts

IP’s Wendy Paris notes the reduction in transparency offered by fiscal sponsorship because its “990 is buried in the overall accounting of the sponsor. Does it have shady donors? Are its executives’ salaries too high? Does the new organization have inadequate oversight and internal controls? All these nonprofit accountability questions — and more — can be obscured by the use of fiscal sponsors.”

Paris, citing Craig Cichy, executive director of Social Impact Fund, less oversight is not necessarily a problem because fiscal sponsors typically have an experienced board that conducts audits. Paris continues to suggest that “the increasing professionalization of the field over the years has reduced opportunities for potential abuse, according to the team at the Study Center. And fiscal sponsors allow individuals and groups to address problems they see that might otherwise go ignored due to overwhelming logistics.” “It’s kind of like the venture capital secret of the nonprofit sector,” said Gregory Colvin, an attorney and author of the (very helpful) book “Fiscal Sponsorship: 6 Ways To Do It Right” and its companion website.