If you manage a nonprofit and are considering becoming a fiscal sponsor, be sure to read “At Last—A Way to Evaluate Fiscal Sponsors” in the newest issue of Nonprofit World. This article, by Gerald R. Solomon of the Samueli Foundation, sheds light on a practice that can confuse many organizations.
Solomon defines a fiscal sponsor as a nonprofit that allows a group or individual to use its 501(c)(3) status to obtain grants for a project. The group (also called a service provider) may be engaged in a short-term project, or it may intend to seek tax-exempt status of its own in the future, or it may even be awaiting IRS approval of its tax-exempt status. For the purposes of the project at hand, the fiscal sponsor is the one who receives money from the funder, distributes those funds to the sponsored group, and includes the grant in its tax returns. Fiscal sponsorship thereby becomes a three-way relationship between a funder, a nonprofit, and a service provider.
For those considering fiscal sponsorship, Solomon advises caution, emphasizing that the nonprofit must be prepared to bear all risk and liability for the sponsored project. To help organizations decide whether to pursue such a partnership, he assembles a list of 16 standards to evaluate a fiscal sponsorship. These standards relate to the nonprofit’s mission, its financial capacity and integrity, its human resource capacity, board governance, grants management, and technology infrastructure.
The November/December issue of Nonprofit World is available at the Foundation Center libraries. For additional information on fiscal sponsorship, search the Catalog of Nonprofit Literature, using “fiscal sponsorship” as a keyword.