November 2, 2017Seattle, Washington

Madhu SinghThe Foundry Law Group

FiscalSponsorships:ComplianceandBestPractices

BroadOverview-WhatisaFiscalSponsorship?Arrangementbetweentwoorganizationsthatallowsonegroup(entityorproject)to“piggyback”offofanalreadyestablishedorganizationwithtax-exemptstatus.

CommonTermsFiscalSponsorship:Thearrangementbetweenthetwopartieslistedbelowgenerallyintheformofanagreement.

FiscalSponsororSponsoringOrganization:Thesponsoringorganizationthathas501c3tax-exemption

Sponsoree orSponsoredOrganization:Theorganizationthatdoesnothaveitsown501c3statusandis“borrowing”thefiscalsponsor’s501c3status.

Whyuseafiscalsponsor?

• Neworganization- testingwaters• Alignment• Seekingfundingvehicleoraccesstogrants• Accesstoresources• Administrativesupport

Whydoesallthismatter?TheIRSgrantsnonprofits501c3tax-exemptionforthepurposeofcarryingoutaspecificcharitablemission.TheIRSwantstomakesurethatanymoneyandactivitiesofnonprofitiswithinthatstatedcharitablemission.

TheIRSdoesNOTlikeitwhenaSponsoree usesaFiscalSponsor’s501c3tax-exemptstatusAND

• TheFiscalSponsordoesn’tmakesureitalignswithitscharitablemissionand/ordoesnotmonitorthesponsoree’s spendingoractivities.

• Why?BecauseitcouldbeusingthemoneyforpurposesthatarenotwithintheSponsor’smission.

WhathappenswhentheIRSisnothappy?

IftheIRSthinksitisnotaRealFiscalSponsorshiprelationship,thesponsoringorganizationrisks:• Losingits501c3tax-exemptstatus;or• Havetopayaheftyfine.

Whereisthedownsidetoallthis?• HavetopayanadministrativefeetoFiscalSponsor(2-10%)

• Lesscontrolandautonomyovertheprojectandmoney

• Difficulttocreateastrongidentity/brandwhentheprojectisundertheumbrellaofanotherorganization.

BenefitsforFiscalSponsor

• Mission• Enhancedpublicimagethroughthe

workofthesponsoree’s• Attractnewdonors• Prideinhavingplayedarolein

launchingnewprojectororganization.

• TheSponsortakesonadministrativeburdens(suchasprovidingdonoracknowledgmentlettersandanygrantreportstofoundationorgovernmentalfunders);

• $Costofstafftime todoadminwork• Sponsoree’s donationswillbereflectedonthefiscalsponsor’sbooksandreportedonitsForm990taxreturn;

• Thefiscalsponsorisresponsibleforensuringthefundsitreceivesfortheprojectareusedtofurtherthesponsor’scharitablepurposes;

• Ifthefiscalsponsoradoptstheprojectasitsown,itmayberesponsibleforalloftheproject’sliabilities

DownsideforFiscalSponsor

ChoosingtherightFiscalSponsor

• Missionalignment• Compatiblecultures• Communicationstyles• AgreementontypeofFiscalSponsorship

relationship.• Agreementonhowfundswillbehandled.

FiscalSponsorshipFiscalsponsorship(distinguishedfromfiscalagency)requiresthepubliccharitythatactsasthesponsoringorganizationtomaintainultimatediscretionandcontrolovertheuseoftheassetsthatitreceivesinitsroleasfiscalsponsor.

Thereare6typesoffiscalsponsorships:1. TheGrantModelortheRe-GrantModel;2. DirectModelorProjectModel;3. IndependentContractor;4. GroupExemption;5. Supportingorganization6. TechnicalAssistance.

2MostCommonTypesofFiscalSponsorships

1.Re-GrantModel2.ProjectModel

FiscalSponsorship– Re-grantmodel

FiscalSponsorship– Re-grantmodelHowitworks:• Sponsoree approachesSponsortoactasitsfiscal

sponsorunderare-grantmodelarrangement(essentially,appliestothesponsorforgrantfunding);

• SponsordeterminestheprogramfurthersitsmissionandagreestoactasitsfiscalsponsorbyraisingfundsandmakinggrantstosupporttheSponsoree (pre-approvestheprojectasitsgrantee);

• ThefiscalsponsormakesagrantapplicationtoaprivatefoundationorsolicitsindividualcontributionstosupporttheSponsoree (subjecttofiscalsponsor’sultimatediscretionandcontrol);

Sponsoree OrganizationBestPractices:• Incorporateasa“nonprofit

corporation”withSecretaryofStatebyfilingarticlesofincorporation

• Registerwithstatecharitiesdivision• ApplyforFEIN• Establishaboardanddraft/signbylaws• RecordMeetingMinutes

CommonPitfallsofRe-GrantModel

• Avoidaccepting‘gifts’earmarkedfortheSponsoree

• Communication:donorsshouldbeawareofthearrangement

• Paymentsshouldbemadetothefiscalsponsorandmaybedirectedtothesponsoree

• Reportstofiscalsponsor.

FiscalSponsorship– Projectmodel

FiscalSponsorship– Projectmodel

Projectmodel:the fiscalsponsorconductstheprojectasitsown.Generally,theprojectdoesnothaveaseparatelegalexistence.Butanadvisorycommitteeshouldbeappointedtomanagetheproject,subjecttothesponsor’sultimatecontrol.

BestPracticesofProjectModel

• Sufficientoversightbysponsor– establishanadvisorycommittee.

• FiscalSponsor‘owns’theprojectandisauthorizedparty.

• Sponsoridentificationinfundraisingandothercommunications

• Clearexitplan(Ifoneisrequired)

Sponsoree Organization

BestPractices:

• Establishboard/committee/advisoryteam

• IdentifyauthorizedpointofcontactforFiscalSponsor

• Detailprojectplainwithcompletion/transitiondetails

PracticallySpeaking• Sponsoree oftenwritesthegrantproposalandtheSponsorstaffreviewsit,signsitandsubmitsittothefunder.

• Sponsoree draftsgrantreportsandSponsorreviews, signsandsubmitsittothefunder.

• Sponsoree requestspaymentsmade,Sponsorwriteschecks.AgoodFiscalSponsorwillreviewtherequesttomakesureitisconsistentwiththegrantrequirements.

EndingaFiscalrelationship• Theprojectiscompleted.• TheSponsoree changesitsfiscalsponsor.• TheSponsoree getsitsown501(c)(3).• TheSponsoree mergeswithanother501(c)(3)organization.

• Beterminatedbythefiscalsponsorduetoanyofthefollowing:

• Thesponsoredproject’saccounthasazerocashbalance• Nosignificantactivityhasoccurredinconnectionwiththeprojectforoneyearorlonger

Overview• Canbeagreatoptionforneworganizationsorspecificprojects.

• Buildbridges.Alignmentiskey.• Missionwork.• Attheendofthedaythisisnotfinalandcanberestructured.

• FiscalSponsorAgreementsareworththetimeandenergy.

ThankyoutoourSponsors.