In place of pursuing or maintaining independent 501(c)(3) status, one option available to nonprofit organizations is to come under the umbrella of a fiscal sponsor. There are a few ways that fiscal sponsorship is practiced, but the most common is comprehensive fiscal sponsorship (CFS). A “parent” organization, or sponsor, takes on groups that conduct charitable activities in line with the sponsor’s mission. The sponsor handles administrative and governance responsibilities, freeing up the sponsoree, or “project,” to focus on its work in the community.
Under CFS, the sponsoree becomes a project of the sponsor and is part of the same legal entity. The employees of the project are employed, and paid, by the sponsor and grants donations received are given to the sponsor, designated/restricted towards the work of the project. The sponsor handles finance, administration, human resources support, state and federal legal compliance and filings, and provides support and capacity building to the project, such as in the areas of financial management, budgeting, and grants management.
There are a number of reasons to consider fiscal sponsorship. For new groups wanting to do charitable work can avoid the expensive and time-consuming process of applying for 501(c)(3) status and waiting for approval from the IRS to be able to receive tax-deductible donations. This allows them to more quickly being their work in the community, as well as saving money and energy otherwise devoted to IRS filings and reporting. Existing organizations can save a substantial amount of money, while being freed up to focus on direct community work. While fiscal sponsors charge a fee for their services, they are able to provide administrative support more cost-effectively than smaller, independent organizations. They also handle governance and legal compliance issues, so these are taken off the plate of project staff so they can devote more time to program advancement and less to administration. For organizations going through a difficult stretch and considering a merger, CFS provides an alternative option. A merger entails time-consuming negotiations over how programs are run, assets are utilized, and the future direction of the combined organization. Sometimes, the mission or work of one former organization is diluted or lost post-merger. Under CFS, all of the projects assets are maintained in a dedicated fund or account and project staff are able to pursue their same work and mission.
I’m grateful for this white paper by Josh Sattely of TSNE MissionWorks, a leading fiscal sponsor in Boston, MA with projects in several states. TSNE MissionWorks has been providing fiscal sponsorship since 1959, formerly under the names Third Sector New England and Massachusetts Health Research Initiative. They also provide affordable rent to nonprofit organizations at the Nonprofit Center at 89 South Street and provide trainings in their Better Nonprofit Management series.
More information about fiscal sponsorship can be found at the National Network of Fiscal Sponsors, and the San Francisco Study Center maintains this national directory of fiscal sponsors.