Fiscal Sponsor Guidelines

If your group has not yet received federal nonprofit, tax-exempt 501(c)(3) status, you may apply by using another 501(c)(3) organization as a fiscal sponsor.  Note: A Fiscal Sponsor is different than a Fiscal Agent. ARAC will not accept grants using a Fiscal Agent.

Fiscal Sponsorship: The term “Fiscal Sponsorship” describes an arrangement between a nonprofit organization with a 501(c)(3) tax exempt status, and a project, often a new charitable effort, conducted by an organization, group or an individual that does not have 501(c)(3) status. Fiscal sponsorship permits the exempt sponsor to accept funds restricted for the sponsored project on the project’s behalf. The sponsor, in turn, accepts the responsibility to ensure the funds are properly spent to achieve the project’s goals.

The sponsor must have “complete discretion and control” over the funds. This means the sponsor must be legally responsible for the funds to ensure that payment of funds to the sponsored project are made to further the sponsor’s own tax-exempt purposes. It is important for a sponsor and its project to understand the exact nature of their relationship and to memorialize the terms in a written agreement.

Elements of Fiscal Sponsorship:

  • The Fiscal Sponsor acts as a guardian of the funds for a project that does not have 501(c)(3) status;
  • The funds received by the sponsor must be used for specific charitable projects that further the sponsor’s own tax exempt purpose;
  • The sponsor must retain discretion and control as to the use of the funds;
  • The sponsor must maintain records that establish that the funds were used for 501(c)(3) purposes;
  • The project should either be short term or the non-exempt organization should be actively seeking its own tax exempt status.

Finding a Fiscal Sponsor:

To find a fiscal sponsor that is a “fit” for your project you will need to do your homework. Start by making a list of organizations familiar with your work and add any that appear to have a similar purpose to yours. You need to confirm the organization’s 501(c)(3) status. Meet with someone from each of those organizations and discuss your project and desired fiscal sponsorship relationship. Organization’s that are willing to serve as fiscal sponsors typically do so for a modest fee.

Fiscal Sponsor Agreement:

ARAC requires that Grantees submit a Fiscal Sponsor Agreement with their project application showing that an agreement has been formally made between the Grantee and a Fiscal Sponsor. The agreement must be signed by the Fiscal Sponsor party. Below is an example of what a Fiscal Sponsor Agreement should look like and include (this is only an example and applicant’s are not required to follow this template).

Fiscal Sponsor Agreement sample

For more information on how to use a fiscal sponsor to apply for funding, contact the office by calling (218)722-0952 or (800)569-8134, or by emailing info@aracouncil.org.


 

Source: Fiscal Sponsorship: 6 ways to Do It Right by Gregory L. Colvin (San Francisco: Study Center Press, 2005).