Fiscal Sponsorship: A Balanced Overview

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Fiscal sponsorship is an option that may be available to a person, group, or business to attract charitable funding without starting a nonprofit. It may allow an individual artist to fund the creation of a mural, a group to hold a crowdfunding campaign for pediatric cancer research, or a manufacturer to create and distribute products to regions devastated by a recent natural disaster.

When done right, fiscal sponsorship is a valuable alternative to starting a nonprofit that produces private and public efficiencies through shared administration and fewer nonprofits requiring fiduciary and regulatory oversight.

But when done wrong, fiscal sponsorship may result in an individual or for-profit company inappropriately deriving a private benefit from charitable contributions. This may occur when the fiscal sponsor acts as a mere conduit for contributions to flow to the individual or company without exercising the required control and oversight.


A Definition

The term fiscal sponsorship broadly refers to a number of contractual relationships that allow a person, group, or business to advance charitable or other exempt activities with the benefit of the tax-exempt status of a sponsor organization. These relationships are cogently described in Greg Colvin’s seminal book, Fiscal Sponsorship: Six Ways to Do It Right. The most widely used models of fiscal sponsorship for charitable projects are:

  • Comprehensive (referred to by Colvin as “Model A”), in which the assets, liabilities, and exempt activities collectively referred to as the project are housed within the fiscal sponsor; and
  • Pre-approved grant relationship (referred to by Colvin as “Model C”), in which the project is run by a separate entity funded by the fiscal sponsor.


How Fiscal Sponsorship Works

Donations to fiscally sponsored projects are directed to a tax-exempt fiscal sponsor. Most commonly, the fiscal sponsor is a public charity exempt under Section 501(c)(3) of the Internal Revenue Code and a qualified recipient of charitable contributions that are deductible to the donor. The donations intended to support a particular project are treated as restricted funds dedicated to furthering that project’s charitable purpose.

The fiscal sponsor must then decide how to use those funds. It may not cede its ultimate control and decision-making authority over the funds to the project leaders. But the fiscal sponsor may delegate management of the funds to specific employees, contractors, or volunteers of the fiscal sponsor (comprehensive fiscal sponsorship). Alternatively, it may grant the funds to a suitable grantee that it vetted earlier (pre-approved grant relationship fiscal sponsorship).


Comprehensive Fiscal Sponsorship

In the comprehensive model, the party entering into the fiscal sponsorship agreement with the fiscal sponsor is generally giving up all ownership and control of the project to the sponsor and retaining only the right to enforce, amend, or terminate the agreement and have the project transferred to another qualified fiscal sponsor. In contrast to the fiscal sponsor, the other party to the agreement is not a tax-exempt entity able to directly receive deductible charitable contributions and is likely not properly registered to solicit charitable funds or assets. Most often, it’s just some form of steering committee with minimal activity of its own, which helps minimize any risk that might otherwise be borne by its members.

When working on the fiscally sponsored project, the individuals associated with the other party to the agreement serve as employees, volunteers, or other agents of the fiscal sponsor. Accordingly, if they are fundraising for the project, they are fundraising on behalf of the fiscal sponsor as agents of the fiscal sponsor. Similarly, if they are managing the activities and affairs of the project, they are doing so as agents of the fiscal sponsor, which may afford them the protection of the sponsor’s insurance.

In the comprehensive model, the assets and liabilities of the project are the assets and liabilities of the fiscal sponsor. The fiscal sponsor takes on the project, and all of its risks, because it advances the sponsor’s own charitable mission. Typically, in light of all of the administrative burdens and costs associated with the project and to ensure its own organizational health, the fiscal sponsor charges an intra-organizational administrative fee to the restricted fund dedicated to the project’s charitable purposes.

A fiscal sponsor providing comprehensive sponsorship can serve as an effective and efficient vehicle for incubating a new charitable project, testing an innovative idea, implementing a program with a fixed time frame, and hosting a collaborative effort among charities or funders.


Pre-Approved Grant Relationship

In the pre-approved grant relationship model, the party entering into the fiscal sponsorship agreement with the fiscal sponsor is the sponsor’s grantee. Unlike with the comprehensive model, the project is owned by the grantee, not by the fiscal sponsor. Accordingly, the project’s assets and liabilities belong to the grantee, which is responsible for its own tax and filing obligations.

Generally, the individuals associated with the grantee serve as agents of the grantee when working on the project. But when they are fundraising for the project, they are doing so as agents of the fiscal sponsor. The fundraising must be carried on by the fiscal sponsor because the grantee lacks the tax status to allow for deductible contributions or private foundation qualifying distributions.

The key to this model is to ensure the fiscal sponsor is not serving as a mere conduit for donors and foundations to direct contributions and grants to the fiscal sponsor’s grantee. While the fiscal sponsor can accept contributions and grants with a purpose restriction on how they are used, the fiscal sponsor must have ultimate discretion and control on whether to use such contributions and grants itself or re-grant them out to another entity, not limited to the grantee whose representatives may have raised such funds in the capacity as agents of the fiscal sponsor.

The intended grantee is vetted and pre-approved by the fiscal sponsor prior to any fundraising for the purposes of the project. So long as the grantee has not breached the fiscal sponsorship agreement, the fiscal sponsor will ordinarily grant the funds raised for the project to the grantee, less some agreed upon amount it retains as an administrative fee. While the fiscal sponsor has the variance power to direct such funds to another organization to advance the same charitable purposes, it has a business reason not to exercise such power except under egregious circumstances.

A fiscal sponsor providing pre-approved grant relationship fiscal sponsorship can facilitate broader grantmaking to individual artists producing works to be introduced to the public for noncommercial purposes, nonprofits without an IRS determination of 501(c)(3) status, and discrete charitable programs of for-profit social enterprises. Unlike the fiscal sponsor, such grantees may not be qualified recipients of deductible charitable contributions.

In addition, many, if not most, private foundations have internal rules prohibiting them from making grants to such grantees in part because complex tax laws require them to exercise certain due diligence procedures and threaten them with stiff penalties for a failure to properly comply. In contrast, a private foundation may more safely make a grant to a qualified fiscal sponsor so long as it does not require the sponsor to act as a mere conduit for its grants to flow to a non-exempt grantee.


Fiscal Sponsorship Administration Fee

A portion of the funds raised to advance a particular project’s purpose is typically retained by the fiscal sponsor as an administrative fee. But the fiscal sponsor must account for the significant administrative burdens and costs and the risks associated with acting as a fiscal sponsor to a project. For comprehensive fiscal sponsors, such burdens generally include the management and/or administration of charitable solicitations, donations, grants, human resources (including payroll and benefits), volunteers, financial reporting, audits, government filing requirements, and appropriate risk management tools (e.g., insurance, legal counsel).

In many cases, particularly with smaller projects, the costs associated with fiscally sponsoring a project are higher than the administrative fee. This may be acceptable so long as the fiscal sponsor believes that the project’s value in advancing the sponsor’s mission is worth such net expense. But regardless of whether the administrative fee covers the additional costs, the fiscal sponsor must provide proper management and oversight over the project.


Where Things Go Wrong

Some nonprofits offer fiscal sponsorship as a means for generating additional revenue without adequately managing or overseeing their projects. In a comprehensive fiscal sponsorship, the fiscal sponsor should have the appropriate infrastructure and resources one would reasonably expect of the legal operator of the project. Consistent with such expectation, the fiscal sponsor’s delegation of duties to the project leaders should follow only after sufficient due diligence of such individuals and their planned activities. Additionally, the fiscal sponsor should ensure it has appropriate policies to guide the project leaders’ actions, maintain oversight of the operations, and protect the charitable assets.

Where a fiscal sponsor neglects its responsibilities, a project can be operated in a manner inconsistent with applicable laws and/or beyond the sponsor’s capacity. This scenario can easily come back to haunt a fiscal sponsor and its leaders if the project’s activities (1) result in an unexpected liability, like one stemming from a lawsuit, penalty, or fine; (2) trigger additional registration, licensing, or reporting requirements; (3) fall outside of the sponsor’s stated purpose in its governing documents; or (4) attract significant negative publicity.

Oversight of a project’s activities by regulators and, indirectly, by donors, also becomes more challenging if the sponsor consolidates all of its projects in its information returns and other reports. Accordingly, while the onus is on the fiscal sponsor to properly manage its comprehensively sponsored projects, the additional layer of protection against misuse of charitable assets can be compromised if the sponsor does not keep proper records and the project becomes “hidden” among all of its other projects.

A fiscal sponsor without sufficient capacity may also jeopardize the assets raised for each of its programs by misusing or misdirecting those assets to pay for its general administrative costs or other inappropriate expenses. NPQ has previously covered such scenarios.

Accordingly, a project’s founders seeking fiscal sponsorship should be as selective in choosing an appropriate fiscal sponsor as a fiscal sponsor is in choosing a project. But it would be a mistake to use a fiscal sponsor’s administrative fee as the primary selection criteria. More important are the fiscal sponsor’s financial health, key personnel, and understanding of its legal responsibilities as a fiscal sponsor. The National Network of Fiscal Sponsors’ guidelines for both comprehensive and pre-approved grant relationship fiscal sponsorship are outstanding resources to help assess whether a fiscal sponsor’s practices and agreements reflect such proper understanding.



From a legal perspective, a comprehensively sponsored (Model A) project of a fiscal sponsor is generally no different from an internal program of any nonprofit with the exception of the rights the parties may have to transfer the program to another qualified successor nonprofit. And a pre-approved grantee of a fiscal sponsor housing the sponsored (Model C) project is generally no different from a grantee of any nonprofit that elects to grant funds to an individual or nonexempt entity, which is a permissible form of grantmaking for any charity so long as it is done with appropriate restrictions on use.

Fiscal sponsorship, when appropriately structured and implemented, is a valuable alternative to formation of a nonprofit organization, particularly where the sustainability of a separate entity is highly questionable, the charitable endeavor has a relatively short life span, or the project founders lack the capacity to properly administer a compliant nonprofit, tax-exempt organization. While there will always be stories of abuses, as is the case in every field, the problem lies in the implementation and not the lawful practice of fiscal sponsorship done right. Fiscal sponsors must be diligent in helping to educate the field and the broader community to preserve and best utilize this important and often misunderstood form of collaboration.