Fiscal sponsorship is an arrangement where an exempt organization, typically a 501(c)(3) public charity, furthers its mission by receiving and expending funds to support a mission-aligned “project” while retaining discretion and control over the funds. Unlike a traditional program carried out by a nonprofit, fiscal sponsorship relationships are typically memorialized in a legal agreement that defines roles and responsibilities and preserves independence of public identity, key decision making, and the right to exit the relationship. 

NO. Fiscal sponsorship is a program support model for the established purposes and activities defined by Sections 501(c)(3) and 501(c)(4) of the Internal Revenue Code. As such, it does not require distinct regulatory oversight. Nonprofits that offer fiscal sponsorship are all either 501(c)(3)s or 501(c)(4)s and like any other organization bearing those exemptions, are subject to the reporting and regulatory requirements defined by law. Fiscal hosts legally seated outside of the US are subject to the regulatory requirements of their respective tax and legal jurisdictions.

NO. Fiscal sponsors are required to report their financial activity according to federal and state law. All fiscal sponsors are required to file an annual IRS Form 990 federal tax return for an Exempt Organization. Additionally, fiscal sponsors are subject to required registration and regular filings with state charitable regulators or Attorneys General offices, depending on where they operate. 

Fiscal sponsors account for their sponsored “projects” (the term for an operating charitable unit of activity under a fiscal sponsor) through fund-based accounting, which is consolidated for the purpose of annual compliance (IRS Form 990) into the total operating financials of the sponsor. The IRS Form 990 does not require sponsors to break out or schedule individual project activity, with the exceptions of re-granting activities and disregarded entities (Model “L” Disregarded Entity or Sole-member LLC Fiscal Sponsorship), both of which are scheduled on the Form 990. Though not required by GAAP or FASB, some sponsors voluntarily break out sponsored project activities in the notes section of their independently (CPA) prepared financial statements. Regardless of accounting standards or compliance requirements, all fiscal sponsors should be able to account for individual sponsored project assets and financial activity at any given time.

Leading nonprofit accountability organization, Candid, is working toward greater transparency for fiscal sponsors and projects. They are testing new capabilities on their platform to enable sponsored projects to voluntarily claim a profile, just like any nonprofit, thereby allowing sponsored projects the same data visibility as a stand-alone nonprofit.

YES and NO. The term “fiscal sponsorship” is specific to the practice in the US, having been documented and established in attorney Gregory Colvin’s Fiscal Sponsorship: Six Ways To Do It Right, (Study Center Press: 1993; Revised Edition: 2017, with Stephanie Petit). That said, US fiscal sponsors do occasionally use other terms, such as “fiscal host” and “management commons”. Inspired in part by the US model, there are similarly functioning structures emerging throughout the international NGO community, often using different terms, such as “fiscal hosting”, “shared platform”, and “umbrella organization”. These structures serve similar functions but operate differently across a diversity of tax and legal jurisdictions.

YES. There are fiscal sponsors that are legally seated in the US and specialize in international charitable aid and working across national borders, often supporting bilateral and multilateral initiatives involving both government agencies and private philanthropy. These sponsors follow US law and regulations with regard to compliance on the funds they manage, as well as the laws governing international banking and the jurisdictions in which they are operating.

YES. Every fiscally sponsored project should have a Fiscal Sponsor Agreement (FSA) with the sponsor, outlining the responsibilities of both parties, charitable restrictions, “variance power”, as well as costs for support, duration of the agreement, mutual reporting requirements, exit provisions and other key terms. The FSA provides the legal structure for the relationship and the key foundation for mutual and public accountability in the fiscal sponsorship relationship.

NO. Fiscal sponsorship is predicated on the sponsor retaining “variance power”, the discretionary control over charitable funds and related fiduciary and compliance responsibilities. While the sponsor does take instruction from the sponsored project, the sponsor has ultimate purview over the charitable funds, which is the only way to ensure compliance with charitable and tax law. Fiscal agency implies the opposite relationship, one in which the project would hold ultimate control over charitable funds. As the project is rarely, if ever, itself federally exempt, such a relationship would be viewed as inappropriate by the IRS–namely charitable funds being controlled by a non-charitable actor/entity. For the same reason, the IRS prohibits charitable “passthroughs” or “conduits”, which is why these terms are incorrect to use.

YES, but with an important proviso. Management commons is Comprehensive Model “A” fiscal sponsorship practiced according to commoning values and principles, notably clarity around the resources being shared and rules of sharing, governance by participating projects, and a commitment to ongoing learning and intentional community building. A commons is a set of resources (financial, human, physical, natural, intellectual) that is stewarded and sustained for the benefit of a defined, but open group of people. Most commons revolve around land or real property or other natural resources: shared grazing land, a lake, an irrigation system for a set of farms, etc. Digital commons exist where information and ideas are shared with a group of members. But any resource can be sustained and benefit a community through commoning. Fiscal sponsors commonize infrastructure for nonprofits: staff, infrastructure, management practices, and even tax-exempt status. Commoning is the act of stewarding a commons—a community managing resources together with equity and mutual care.

NO. Donor Advised Funds are a distinctly regulated activity and must be reported as such on the IRS Form 990. They are also subject to different requirements and restrictions under tax law. Many fiscal sponsors also host DAFs and collaborative funds alongside their sponsored project portfolio, as both DAFs and collaborative funds rely on shared management resources similar to those needed to manage conventional fiscally sponsored projects. These sponsors manage the unique compliance requirements for DAF’s separate from their sponsored projects.

YES. All gifts and donations to a fiscally sponsored project are 100% subject to the tax classification of the sponsor organization–501(c)(3) or 501(c)(4). Owing to the “variance power” contained in the Fiscal Sponsorship Agreement (see above question on accountability), from a legal and transactional standpoint, the gift is not to project, but to the sponsor. The sponsor retains control over the gift, per the requirements of tax law, and thus can affirm the status of the gift as charitable or furthering social welfare.

NO. Comprehensive fiscal sponsorship can be a solution for sharing back office staff and systems among established nonprofits, without having to give up the unique board, mission or vision of the organization. For start-ups or projects without an entity or tax exemption, a fiscal sponsor can be either a temporary support solution or a “forever” home for charitable work.

NO. Other forms of fiscal sponsorship, notably comprehensive fiscal sponsorship, offer more robust wrap-around support: staff for finance, HR, legal, fundraising, and marketing, as well as insurances, regulatory/tax compliance, and key management technologies. Fiscal sponsorship can be both just for legally receiving contribution, and for accessing comprehensive shared management support.

NO. In fact it allows for substantial overhead savings while adding capacity. A study by Social Impact Commons examined 475 arts organizations in Southeastern PA operating below $2M in budget and found that they spent between 17% and 27% of their income on the same back office supports a fiscal sponsor can offer for between 9% and 15%—a savings of about 10% of income!

NO. The above economic savings and value of integrated support holds true for projects and organizations well into the tens of millions in budget. And keep in mind that of the 1.9 million nonprofits in the sector, 89% operate below $500,000 in annual expenses, a size that is more efficiently and sustainably managed under a Comprehensive Model “A” fiscal sponsor, than through stand-alone operation.

NO. Fiscal sponsors are co-managers with the project providing everything behind the curtain that is needed to support the mission. The public face of the project remains independent: brand, donor/funder relationships and decisions about vision, mission, and organizational development remain with the project (and its board, if there is one). Fiscal sponsors are like shopping malls and projects like the individual storefront businesses. The individual businesses share lots of common resources provided by the mall (parking, common space, wayfinding, security, etc.), but retain their independent brands, customer relationships, and secure space for their assets.

NO. Quality fiscal sponsors help keep sponsored projects out of financial trouble and make sure the financial house is in order, but should not stand in the way of maintaining smooth operations.

NO, with the exception of external risks. Comprehensive fiscal sponsors manage all of the project’s revenue and expenses, though only with project authorized instruction and through fully restricted fund accounting. Pre-approved grant sponsors manage charitable funds received on the project’s behalf. In both cases, staff and systems may be shared, but there is no borrowing or sharing financial assets among sponsored organizations under one sponsor. And while there are external risks, such as natural disasters and political threats, strong fiscal sponsors are also managers of such collective risks for the good of their projects.

NO. The “models” that have been identified by attorney Gregory Colvin are just ways to describe long-standing nonprofit structures. Fiscal sponsorship is actually just multi-program management—like a theatre managing multiple productions, a hospital with many different clinics, or a university with multiple schools and departments. Only with fiscal sponsorship, the project’s brand, mission, vision, and core relationships remain independently yours, and the project retains the right to exit the relationship.

Not often, but sometimes. This is increasingly not the case as the funding community is embracing fiscal sponsorship as a means of promoting greater sustainability in the nonprofit sector. Where we have encountered hesitancy, it’s almost always an issue of understanding of or familiarity with fiscal sponsorship, not hard or considered policy. A bit of clarification and education from the sponsor usually sets things right.

NO. Impact Commons is not a fiscal sponsor, it supports fiscal sponsors. It is an incubator and shared service provider for the fiscal sponsorship field, with the goals of growing and strengthening the field. Established as a 501(c)(3) tax-exempt organization, with the sub-designation as a “Type I Supporting Organization”, Impact Commons supports independent organizations of similar mission—in our case, fiscal sponsors or commons managers. The only exception is the case of a new fiscal sponsor organization that needs to be created from the ground up–new legal formation and federal tax exempt application. Impact Commons will temporarily sponsor such organizations, with the mandate that they seek their stand-alone federally exempt status and exit the sponsorship relationship as soon as possible.

Currently, there are two nonprofit organizations exclusively dedicated to convening and building the field. Social Impact Commons is the first capacity and field builder for the fiscal sponsorship/hosting ecosystem, with a focus on the US, but an international embrace. Founded in 2020, as a member-governed supporting organization, Impact Commons provides whole-systems support to about 100 fiscal sponsor organizations and allies, as well as steward a community of practice of about 700 individuals. The organization builds the capacity of fiscal sponsors and works with projects and philanthropies through direct advisory support, tools, technology, and other shared resources; it also leads research and advocacy efforts for the field. The Nation Network of Fiscal Sponsors (NNFS), founded in 2004, is an all-volunteer association of fiscal sponsors that is primarily responsible for convening the field, through regional meetings and an annual conference.