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If the relationship lacks certain attributes, or is undertaken with a less-than-ideal partner, there can be serious consequences. While fiscal sponsorship can be a great fit in many situations, it can present complex structural issues. This model raises fewer liability issues, since the sponsored entity is considered the operator of the project, but it is more likely to run afoul of the pass-through issue discussed below. The sponsored entity will help to raise money from donors that is re-granted by the fiscal sponsor to the sponsored entity for the project, subject to the fiscal sponsor’s ensuring that grant funds are properly expended for charitable purposes.
#Umbrella corps not starting full#
The fiscal sponsor accepts donations for the project and has full legal ownership of funds, and monitors project expenditures. The fiscal sponsor may hire project staff as employees to carry out the project, or may hire independent contractors (including the sponsored entity itself) to carry out the project. Under the project model, the fiscal sponsor owns and operates the sponsored project.Most fiscal sponsorships are structured using either the “project model” or the “re-grant model.” Above all, the sponsored project must engage in work that furthers the fiscal sponsor’s charitable mission. Often, administrative services are offered as well, and an administrative fee is charged. Two main models of fiscal sponsorshipĪs indicated, fiscal sponsorship is an arrangement in which an established 501(c)(3) organization-generally a public charity-agrees to provide oversight and assume legal and financial responsibility for the activities of a non-501(c)(3) project (or a project awaiting 501(c)(3) determination). There are also important business considerations to keep in mind when structuring a fiscal sponsorship for example, including an appropriate exit strategy should the relationship not work out. Caveat: it is very important to properly structure the fiscal sponsorship, or it will be disregarded by the IRS for tax purposes, which can result in adverse tax consequences to the fiscal sponsor and/or the funders. The fiscal sponsor, in turn, will award those funds to the new charity or its project (depending on the model of fiscal sponsorship used). Grants and donations can be made directly to the fiscal sponsor (meeting the funder’s requirement of having a recipient with a 501(c)(3) determination). A fiscal sponsor is, essentially, an existing 501(c)(3) organization that will allow the new charity to operate under the fiscal sponsor’s 501(c)(3) umbrella, while the charity awaits its 501(c)(3) determination. One solution we often suggest is for the charity to seek the help of a fiscal sponsor. Therefore, we encourage all our new charity clients to consider developing a contingency plan, which will help them survive the IRS delay.
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Those of us who work closely with new charities (and the foundations that fund them) share your frustration! We understand that an IRS delay can translate to a delay in funding, which can sometimes mean the death of an organization even before it has had a chance to get started. This is because many funders are reluctant or unwilling to make grants or donations to organizations that have not yet received a 501(c)(3) determination. Are you planning on filing an application for 501(c)(3) status (Form 1023) with the IRS in the near future? Or have you filed one in the recent past? If so, are you aware that the IRS backlog for processing 501(c)(3) applications has now surpassed one year? Our last post noted that delays in obtaining 501(c)(3) determination letters can create real fundraising headaches for new organizations.