What Is Fiscal Sponsorship And Why It Can Be Beneficial For You?
By Victor Ochieng
One of the biggest challenges people face whenever they want to start a project is securing funds. Whether you want to produce a film, a dance project or a seminar, you’ll definitely need money to purchase the necessary materials, pay your team and, maybe, hire space.
Well, instead of having to establish a separate 501(c) 3 to help you with fundraising, you can take advantage of fiscal sponsorship. With fiscal sponsorship, you can easily utilize the tax exempt status of another nonprofit and apply for grants, as well as other tax deductibles.
Establishing a nonprofit is no mean feat. It takes both time and money and would require a board among other administrative positions for project implementation and accountability. Before receiving enough grants to establish their nonprofit, some are compelled to seek volunteers first. But even after the organization has been established, all surplus is pumped back into the project, meaning staff members are neither given dividends nor bonuses.
With a fiscal sponsorship, however, things are a lot easier. Through fiscal sponsorship, one can run a project under the umbrella of another nonprofit. In such a setup, the fiscal sponsor only needs to accept some level of responsibility on the project in question. The fiscal sponsor must commit to play some administrative and oversight roles, as well as agreeing to shoulder some legal responsibilities relating to the project.
There are two versions of fiscal sponsor relationships, says attorney Gregory L. Colvin, the author of Fiscal Sponsorship: 6 Ways to Do It Right. There is the comprehensive and pre-approved fiscal sponsorship.
“In a comprehensive fiscal sponsorship relationship, the fiscally-sponsored project becomes a program of the fiscal sponsor. A fully integrated part of the fiscal sponsor maintains all legal and fiduciary responsibility for the sponsored project, including its employees and activities. This model of fiscal sponsorship is particularly valuable, when a project has employees,” explains Colvin.
Colvin further says that in a prep approved fiscal sponsorship approach, the beneficiary project is treated as an independent entity that takes care of its tax returns and liabilities. The main role played by the sponsor is giving assurance that the target organization will use the funds raised for nothing else, but the earmarked project.
In most cases, the sponsor charges somewhere between 2% and 10%.
Check out the National Network of Fiscal Sponsors website for a list of these sponsors from across the country.