Learn the basics of fiscal sponsorships, how they work, and where to get a fiscal sponsor so your new organization can start fundraising.
For many new nonprofits, the process of acquiring 501(c)(3) status can be tedious, expensive, and take an inordinate amount of time. It typically takes 3 – 6 months or longer before nonprofits can even receive their IRS letter of determination. This means that it could take several months before you can even begin your charitable fundraising efforts.
But even if you’re not a 501(c)(3) nonprofit yet, there’s still a way you can fundraise as a tax-exempt organization! Fiscal sponsorships are how many new organizations still waiting on their IRS determination letter have been able to bypass this hurdle.
What is a Fiscal Sponsorship?
Fiscal sponsorships provide new organizations the opportunity to receive tax-deductible donations by being sponsored by a 501(c)(3) tax-exempt nonprofit. It provides new organizations or projects the ability to piggy-back on the fiscal sponsor’s IRS status.
Depending on your agreement, tax-exempt entities can also provide support for tasks that some new nonprofits may not be able to cover: administrative, accounting, charitable solicitation compliance, fundraising, and legal services.
Often times, a fiscal sponsor requests a fee in exchange for these services. Donations made to the sponsee are disbursed the fiscal sponsor and treated as restricted funds dedicated to supporting the sponsee.
Want to see how fundraising with a fiscal sponsor works on Mightycause? Contact us to get a demo!
Who can be a Fiscal Sponsor?
A fiscal sponsor can be any 501(c)(3) tax-exempt public charity. Ideally, a fiscal sponsor has a common cause or mission to the sponsee. A fiscal sponsor is responsible for receiving and disbursing the funds thus they should be an organization that is considered reliable and trustworthy. A fiscal sponsor should have clean financial audits and be in good standing with the IRS.
Common Stipulations of a Fiscal Sponsorship
Fiscal sponsorships can vary depending on the agreed upon terms between the fiscal sponsor and the sponsee. Many fiscal sponsors, not all, charge an administrative fee for their services. You’ll want to make sure that there is a written agreement that breaks down the exact terms of the sponsorship, any fees that will be charged, and the services that will be provided by the fiscal sponsor.
Most importantly, the agreement should outline the process for holding and disbursing funds.
How do I find a fiscal sponsor?
Many different types of 501(c)(3) organizations engage in fiscal sponsorships. Consider asking existing 501(c)(3) organizations in your community if they would consider being a fiscal sponsor. Look for organizations with complementary missions, that share your organization’s area of work. (For instance, your small organization to cover the cost of providing free school lunches would fit well within the mission of large regional food bank or hunger organization. So they would be a better prospect to provide a fiscal sponsorship than, say, an animal shelter.)
If you cannot find an organization in your community, you can find a directory of organizations willing to act as a fiscal sponsor through fiscalsponsordirectory.org
How does fiscal sponsorship work on Mightycause?
Using Mightycause as a fiscal sponsee is easy! Our team has the ability to add your organization to our database so that you can begin fundraising as soon as possible. In order to add a fiscal sponsee to our database, will need a letter/Memorandum of Understanding (MOU) between you and your fiscal sponsor that provides the following information:
- The letter needs to be on the sponsoring organization’s letterhead with its address and EIN.
- Approval for the sponsored organization to use the sponsoring organization’s EIN for tax purposes, including a signature from both entities.
- The letter needs to include the fiscally sponsored organization’s name and address.
- How the fiscal sponsor would like to receive funds (via direct deposit or check). You will want to include the sponsoring organization’s authorization in the letter stating this.
- If they prefer check, please specify the fiscal sponsor’s organization office.
- The letter can contain other pieces of information that the organizations agree are important as well, per your discretion.
Once you have this documentation completed, simply contact us here with an attached document of your letter. If you have a copy of your EIN Verification Letter, please also include that. Once we have that documentation, we can move forward in adding your organization!
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