Fiscal Sponsorships 101

In September 2014, I began working at ACF in a newly-created position at the organization: Program Officer of Initiatives. In this role, I am the primary ACF staff responsible for fiscal sponsorships.

Fiscal what?

If you’re confused after reading that sentence, don’t worry, you’re not alone.

The term fiscal sponsorship refers to an arrangement between two parties on how funding is managed. This relationship is often between a group wishing to conduct a charitable program, who does not want to or is unable to incorporate or obtain its IRS 501(c)(3), and an existing nonprofit organization. The fiscal sponsorship relationship has been practiced in varying degrees since 1959 when the Massachusetts Health Research Institute incorporated and began sponsoring community-based public health projects and research laboratories.

The prospect of obtaining 501(c)(3) nonprofit status from the IRS and subsequent compliance can be daunting. Many projects, such as small grassroots movements or short-term initiatives, lack the wherewithal to even begin the application process. For groups unwilling to drain limited resources obtaining their nonprofit status with the IRS, fiscal sponsorship can represent an attractive alternative. Under a fiscal sponsorship relationship, the project becomes a program of the fiscal sponsor and its activities become part of the sponsor’s tax exempt activities. The project can then solicit and receive funding in the fiscal sponsor’s name.

Fiscal sponsors run the essential back office operations of their projects in a highly competent, cost-effective manner, allowing project staff to focus on achieving activities central to project purposes. The end result is that valuable projects are able to minimize administrative burdens and maximize the project’s impact and society’s corresponding return on investment. Like all fiscal sponsors, ACF assesses an administrative fee based on a percentage of a project’s revenue or expenses. These fees can range based on the services that are provided and the complexity of grants to be administered.

Some commentators have likened fiscal sponsorship to a pass-through arrangement, where the sponsor is used as a vehicle to allocate contributions to the proper parties. However, this does not encompass all of the responsibilities and nuance of the relationship. A fiscal sponsorship is a capacity-nurturing relationship, where the project is transformed into a program of the fiscal sponsor; the fiscal sponsor has a vested interest in project success because success or failure is a reflection of the fiscal sponsor’s abilities.

Over the next few months, I’ll be writing more about some of ACF’s fiscal sponsorships and the amazing work that they are accomplishing. Here’s until my next blog!