Fiscal Sponsorship or Agent: A Yellow Light

There are two alternatives to incorporating as a nonprofit tax exempt organization in the U.S. It can depend on your mission and the activities you will perform as well as whether you will raise funds.

One very unique and successful group that has never incorporated and never raises funds and does not seek grants is Alcoholics Anonymous. If that is the model you are planning, really consider carefully why you think you need to incorporate.

The second example includes groups that have not completed their incorporation process and are raising funds and the group that will raise funds, work on its mission but does not want to incorporate and handle the records and necessary reporting and filing. Both of these alternatives can consider seeking a sponsoring partner, commonly called a fiscal sponsor or a fiscal agent. As you will see there is not unanimity whether it is a "sponsor" or an "agent". I will use the word "sponsor" for this article.

Very frequently individuals are required to have a fiscal sponsor for certain grants, folks such as artists, dancers, painters, film makers and so on. They can find the beginning of assistance from the funder or from articles at the Foundation Center, linked below.

This discussion is not about partnerships between nonprofit tax exempt organizations jointly seeking grants and one of them being the lead agent. Some aspects of what I am suggesting do apply, however.

I give the concept of finding a fiscal sponsor or becoming one a bright YELLOW light headed to red. I become annoyed when I see nonprofit leaders rather cavalierly tell inquirers, oh, just find a group to be your fiscal sponsor. Nor so fast cavaliers.

There are several items I suggest:

1. Both groups should perform due diligence, that is, investigate the other for fiscal, legal and other problems, wrongdoing or misconduct
2. Have the fiscal sponsorship in writing detailing the duties and obligations of both parties. It will be a legal document
3. Be a sponsor only of groups that share a common or similar mission as stated in your incorporating papers and the IRS filing of the 1024
4. Consider only sponsoring groups that are in the process of incorporating and filing for tax exemption
5. Have an ending date or ending event in the agreement
6. Have the respective boards review and agree to the contract and have an approved person sign and date it.

Both the sponsor and the group need to recognize that the sponsor CONTROLS the following items:

1. Sponsor may charge fees up to 15-20% of the revenue or expenditures
2. Donations and grants are payable to the sponsoring organization
3. The sponsor provides the IRS documentation of tax exemption for donations for the group
4. The sponsor maintains the bank account and all receipts for the group
5. The sponsor pays all bills based on required fiscal reports and receipts filed by the group
6. The sponsor receives requisite reports in a timely fashion from the group including for the sponsor to file grant reports and the IRS 990
7. The sponsor hires any staff and maintains salaries and benefits
8. The sponsor may provide other services to the organization by contract such as offices and human resources,
9. The sponsor provides the insurance
10. The sponsor can be responsible for debts incurred by the organization
11. And more as agreed by the parties

As fiscal sponsor, is that what you want to do?

As the group seeking assistance, is that what you are prepared to sign up for?

Resource material:

From the Adler and Colvin law firm:

Fiscal Sponsorship Agreement (Model A)

Fiscal Sponsorship Grant Agreement (Model C), short form

Request for Technical Advice (IRS Lobbying Exception) - Effect of fiscal sponsorship on lobbying
http://www.fiscalsponsorship.com/images/WCTEO_Gregory-Colvin.pdf

A handy-dandy chart COMPARISON OF STARTING A NEW 501(C)(3) ORGANIZATION WITH USING A FISCAL SPONSOR (MODEL A) by Gregory L. Colvin 4/30/08
http://www.fiscalsponsorship.com/Compare%20501c3%20w%20Fisc%20Spon%20Model%20A%20_00075865-2_.pdf

The U.S. Bureau of Justice has material about how they handle fiscal agency; they do not call it “sponsorship”.

BJA will award a single grant based on an approved application in each of the U.S. Attorney Districts. However, the selection committee may wish to dedicate funds to more than one jurisdiction or for more than one project. As a result, each task force will need to use a fiscal agent to receive the funds and then make subawards to or enter into contracts with each project or entity that will carry out each component of the strategy. Only nonprofit organizations and units of state and local government are eligible to apply to be the fiscal agent.

The BJA also has the following Tool Box to help solidify what they are looking for.

Tool Box

List of BJA's State Administering Agencies (PDF)

U.S. Attorney Certification Process for the Fiscal Agent and Subrecipients

Sample Certification Letter for Fiscal Agents

http://www.ojp.usdoj.gov/BJA/psngrants/psn4.html

The San Francisco Study Center, which rejects the words "fiscal agent" as inappropriate, requires the following at a minimum to provide fiscal sponsorship. Study Center offers its sponsored projects:

1. Budget development and tracking
2. Tracking and payment of vendor invoices
3. Personnel administration including payroll and benefits administration
4. Maintenance of individualized general ledgers for each project
5. Contract management, including invoicing and reporting to funders
6. Individualized monthly statements
7. Management of organizational insurance requirements

http://www.studycenter.org/test/services.html#fiscal

The Foundation Center's article, What to Consider Before Becoming a Fiscal Agent, is a brief look at the topic - http://literature.foundationcenter.org/2008/12/what-to-consider-before-becoming-a-fiscal-sponsor.html

Good information for individuals at the Foundation Center, What is a fiscal sponsor and how do I find one? http://foundationcenter.org/getstarted/faqs/html/fiscal_agent.html

The Foundation Center also has material about Where can I find examples of policies, procedures and guidelines for fiscal sponsorship agreements on the web?

http://foundationcenter.org/getstarted/faqs/html/fiscal_example.html

The Community Resource Center, Colorado features a discussion about sponsorship by David Barlow, CPA:
http://www.crcamerica.org/nonprofit_formation/sponsor.asp

Community Technical Assistance Center, Fiscal Sponsorship

http://www.ctaconline.org/fiscal.asp

I strongly suggest the parties discuss this option with their own lawyers during the yellow light.

I am required to tell you that I am a licensed attorney in New Jersey. I may have given you legal information here but I have not given you legal advice.