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Models of Fiscal Sponsorship for Nonprofit Organizations
Fiscal sponsorship is an excellent alternative to establishing a new nonprofit for
many projects. The relationship can be particularly effective for short-
If you are considering seeking a fiscal sponsorship to move forward on your nonprofit idea, it will be beneficial to familiarize yourself with the various models available.
Group Exemption
Here, a new nonprofit organization utilizes the benefits of fiscal sponsorship to its fullest extent. The project does not have to apply to the IRS for its own 501(c)(3) status, but the sponsor obtains federal group tax exemption and confers those benefits on the subordinate project. The details are hammered out in an affiliation agreement, but the sponsor must retain general control over the project to be legitimate. Charitable donations to the project belong to the project.
Supporting Organization
A supporting organization is one that secures its own 501(c)(3) exemption from the IRS but utilizes the sponsor's public charity status based on the project's support of the sponsor's stated purposes. Charitable donations collected by the project belong to the project.
Pre-Approved Grant
In these agreements, the sponsor provides one or a series of grants to an organization
(through an application process), usually up to a certain matched level, where the
match comes from the project's own donations collected. Usually, this option is used
for projects that are not under 501(c)(3) status, in order to collect tax deductible
donations and grants for their project. The grantee is a separate legal entity from
the sponsor and does not operate under their legal and tax-
Independent Contractor Project
Independent contractor projects belong to the sponsor and are conducted by a separate
(paid) entity under contract. Typically, these relationships develop because the
sponsor needs the expertise of an outside professional to conduct a project that
is an integral part of the sponsor's activities and work. The independent contractor
is a separate legal entity from the sponsor and does not operate under their legal
and tax-
Direct Project
A direct project is generally created and implemented by the sponsor's employees and volunteers and belongs to the sponsor organization. The relationship between the project and sponsor is basically an employee/employer connection, where all of the charitable donations toward the project belong to the sponsor. Essentially, the legalities of a direct project make it no different than any other activity of the sponsor organization, but they may be organized separately for management purposes.
There are a number of different models for forming a fiscal sponsorship. The best option depends on the needs of the project and the sponsor. However, specifics of how the relationship works, the amount of the sponsorship fees, and the resources your project will have access to in exchange are details to be hammered out in the affiliation contract.
Fiscal sponsorship can be an excellent option for getting through a short-
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