If your group is thinking of applying for funding, you will need either legal 501c3 nonprofit status or a fiscal sponsor. A Fiscal Sponsor is a non-profit organization with 501(c)(3) tax exempt status from the Internal Revenue Service that acts as a guardian of grants and donations for a Project that does not have 501(c)(3) designation.

A Fiscal Sponsor is necessary for one good reason: funders do not make donations to anyone without 501(c)(3) status. That's because tax exempt status, like incorporation, bylaws and other formal designations, inspires confidence in potential donors and funders. It demonstrates that the organization has a legitimate charitable purpose and is accountable to the public.

Foundations, and sometimes governments simply cannot give grants to projects without a 501(c)(3). Individuals often prefer to give to 501(c)(3) organizations so they can deduct the charitable donation on their annual tax return.

Situations that could call for a Fiscal Sponsor include:

Projects that are short term, or temporary, that wish to avoid the time and expense of applying for a 501(c)(3);

Organizations that are awaiting, but have not received 501(c)(3) status.

Fiscal Sponsor Services

A Fiscal Sponsor manages specific grants made to a project. Services include:

1. Receives the grant and the funds for the designated program;
2. Writes the checks for program expenses;
3. Includes the grant in its annual tax return and audit.
4. produces transaction and balance report

Advantages of a Fiscal Sponsorship Program

Increased Support Base- Many potential donors will become interested in supporting your not-for-profit program if they can qualify for a tax-deductible donation.

Convenience- Most groups, start-up or otherwise, want to focus their energy on their charitable activities. Having to create and maintain an infrastructure can be distracting from the mission of the group.

Saves Time, Money and Headaches-The process to qualify for tax-exempt status is lengthy, expensive and sometimes arduous. Using an independent organization saves the group from having to complete the extensive annual paperwork required by the IRS.

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