What is a fiscal sponsor?
Minneapolis nonprofit attorney Sarah Duniway explains what a “fiscal sponsor” is and what they do.
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So, a fiscal sponsor is a term that does not have a technical legal meaning, but it is a word that gets used in the nonprofit community with some frequency. The general idea is it’s an organization that has agreed to accept fiscal responsibility for a grant, but to be working with another organization, who is ultimately doing the work. This comes up most often with a brand new organization that hasn’t gotten its tax exempt status yet, or it might be there’s kind of a community project where to form a new nonprofit is more rigorous than is really needed for that specific project, but they need an organization to kind of host the project so that they can receive charitable funds or foundation grants and still accomplish what they’re trying to achieve.
So what you typically see with a fiscal sponsorship arrangement done right is a written agreement between the organization that is serving as a fiscal sponsor and the organization or the group, who are actually doing the work. The elements of that contract that are really important is to make sure that the funds are only used for 501(c)3 purposes, that there’s some accountability and oversight to make sure that that’s happening, and that the organization that’s acting as the fiscal sponsor is clear in its understanding and how it’s managing the work and the records that this is an activity that from a legal standpoint it is conducting. So it needs to make sure that the activities are consistent with its own tax-exempt purposes and that it’s exercising the right fiduciary oversight and reporting, and kind of taking credit for this work, but also taking on the responsibility, even though the actual work is getting done by another group or another organization in the community.