Legal Minute: Not Ready For the Full Non-Profit Route Just Yet? Consider a Fiscal Sponsorship
Legal minute with Wilkinson Mazzeo
Do you have a great idea for a charity or other non-profit organization but you just aren’t ready (financially, mentally, etc.) to go the full non-profit route just yet? Chances are you haven’t heard of a nifty temporary solution called Fiscal Sponsorship!
Fiscal Sponsorship is the practice of an officially formed non-profit organization offering its legal and tax-exempt status to an organization or group of people engaged in a charitable purpose similar to the non-profit organization’s mission/charitable purpose. The established non-profit typically charges a fee, or percentage, in return for offering its umbrella status.
So, what does this actually mean? It means that you can sign an agreement with a non-profit that allows you to receive tax-deductible donations for your cause! The only catch is the fee that the non-profit charges, which is typically 5% - 15% of the donations you receive. This fee, however, can vary and is totally up to the parties to decide on the ultimate amount.
So, what does this mean for the non-profit organization? There are three traditional models of fiscal sponsorship that involve different levels of legal liability and different levels of resources offered by the non-profit. Some non-profits are established solely for the purpose of offering fiscal sponsorship and those organizations also provide substantial resources (such as HR services, tax reporting assistance, and more). These arrangements are considered to be so cohesive that you are considered to be a part of the non-profit for the temporary duration of your campaign (and they are liable for your actions, as well).
On the other hand, some non-profits only offer fiscal sponsorship on a limited basis because they truly want to help your cause – these organizations will structure the relationship as either a grantor/grantee relationship (where they give you money raised for a specific purpose and you report how it was used, but you do not use their resources and are considered a separate entity) or as an independent contractor relationship (where the organization provides some resources, but not enough to rise to the level of employer/employee status, and you are considered a separate entity).
Of course, these are pretty general descriptions of the different ways a Fiscal Sponsorship can be approached, so we don’t advise running over to your nearest non-profit to set things up. We do, however, think that Fiscal Sponsorship, when structured properly, can be a fantastic tool to help start a non-profit.
Disclaimer: The information in this article is presented for informational purposes only, and should not be taken as legal advice. Before acting on any information presented in this article, you should consult an attorney regarding the facts of your specific situation. We would love to hear from you, so please feel free to contact Wilkinson Mazzeo for a consultation.
Photo by Rachel Ashley
From the Editor
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