Don’t Wait for Federal Tax Exempt Status – Start Fundraising Today!

Sasha Herzig on February 10, 2014

Are you one of the many organizations who have filed for Federal tax exempt status but have not heard back from the IRS yet?

Are you waiting on your tax-exempt status to receive tax deductible donations from sponsors?

Do funders (including foundations and government agencies) choose not to donate to your projects because you’re not yet affiliated with a non-profit organization?

Waiting on this status could be slowing the growth of your organization.

Well, wait no longer – organizations who do not hold Federal tax-exempt status may still receive tax deductible donations through fiscal sponsorship.

What is fiscal sponsorship?

It’s when a non-profit organization offers their legal and tax-exempt status to groups whose activities are related to the organization’s missions.

Which means that fiscal sponsorship provides individual projects who have not applied for Federal tax exempt status with an opportunity to receive tax deductible donations.
The best part? This kind of agreement can be mutually beneficial to both sponsor and individual, so it can be a win-win for both parties.

Sponsors benefit from fiscal sponsorship by:

  • Attracting new funders to their own programs.
  • Receiving a percentage of the money brought in for the project.
  • Sharing in the honors and benefits from the project’s success.

Projects and organizations without Federal tax exempt status benefit from fiscal sponsorship by:

  • Getting increased availability of funding.
  • Receiving enhanced credibility.
  • Having access to the sponsor’s facilities.
  • Sharing the burden of administrative duties.

It is important for both the fiscal sponsor and the projects or organizations being sponsored to understand how this arrangement works.

The dynamics of the relationship:

Sponsors may only affiliate with projects whose activities are in furtherance of the sponsor’s tax-exempt charitable purpose.

Alternatively, projects and organizations should recognize that they will be under the control of the sponsor, who may be legally responsible for the operations and activities of the project.

How to find a sponsor:

If you’re seeking sponsorship from a 501(c)(3) tax-exempt organization, you should seek out non-profits whose missions reflect those of your project.

It might be helpful to start by looking at local affiliations, including religious organizations, social and recreational clubs, educational associations and institutions, and professional societies.
The Fiscal Sponsor Directory allows you to search by state, service category, or keyword for non-profit fiscal sponsors. Profiles include eligibility requirements, fees, services, and types of projects supported.

The proposal and the agreement:

Once you have a list of potential fiscal sponsors, a verbal and written proposal should be agreed upon.

This proposal should provide an explanation of the project, which includes:

  • Purpose
  • Goals
  • Objectives
  • Method
  • Budget
  • Explanation of how the project advances the non-profit’s mission

Once a project or organization and sponsor agree to affiliate with one another, each should decide on the type of structure that will work best for their particular situation.

Both parties should secure in writing an agreement of expectations from both sponsor and project, which should include:

  • Who supplies what services
  • How such services will be administered.

Make sure to cover as many details as possible – it’s always better to include more details than necessary. This way, you provide both sponsor and individual with a clear understanding of each other’s roles and responsibilities, including any necessary time restraints.

Is fiscal sponsorship a good option for you?

  • If you don’t have the time or resources to incorporate formally as a 501(c)(3) non-profit…
  • Or if you’re awaiting your Federal tax-exempt status, but still want to receive tax deductible donations…

…finding a fiscal sponsor could be an attractive option for you.

Just make sure you know what kind of sponsorship you’re looking for.

Fiscal sponsorship can take many forms, ranging from an all-inclusive service provider to nothing more than the sponsors enabling funding for the project.

It is up to both the individual and the sponsor to determine the relationship – and it is highly encouraged to draw up a formal agreement before sponsorship occurs.

Want to look into your options, but not sure if you want to do it on your own?

We would be more than happy to assist you in finding the right fiscal sponsor for your organization or individual project.

For more information or to set up a consultation, please email us at elena@volkovalaw.com.

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