Common Misconceptions About Fiscal Sponsorship
Introduction:
Fiscal sponsorship is a financial and legal arrangement where a nonprofit organization provides financial and administrative support to another organization or project that may not have tax-exempt status. Here are some common misconceptions:
Tax-exempt status transfer:
One common misconception is that fiscal sponsorship automatically transfers tax-exempt status from the sponsoring organization to the sponsored project. In reality, the sponsored project remains under the tax-exempt status of the fiscal sponsor as it is the sponsor that has a fiduciary responsibility to the donors to oversee the usage of donated funds.
Independence of projects:
Some may believe that projects under fiscal sponsorship lose their independence. However, fiscal sponsors typically aim to provide support while allowing the sponsored project to maintain a significant degree of autonomy in its operations and decision-making. Model C almost always allows the project to maintain independence as a separate legal entity, and retain intellectual property, as well as ownership of the work.
Long-term solution:
Fiscal sponsorship is often seen as a temporary solution for projects seeking nonprofit status. This is true, but it is also true that many projects choose to stay fiscally sponsored indefinitely. It is, however, important to understand that fiscal sponsorship is not a substitute for obtaining one's own tax-exempt status if a project plans to operate independently in the long term.
Financial control:
There might be a misconception that fiscal sponsors take full control of the finances of the sponsored project. In reality, the fiscal sponsor manages the funds, but the sponsored project is responsible for its own budgeting and financial management within the agreed-upon guidelines.
“Focus on the solution, not the problem”
Eligibility criteria:
Some organizations may assume they are not eligible for fiscal sponsorship. However, fiscal sponsors work with a variety of projects, including those focused on arts, education, research, and charitable activities. There are many models of fiscal sponsorship available to suit a variety of needs. A thoughtful review of your project’s mission can often help guide you to the right fiscal sponsor.
Conclusion:
It's essential for organizations considering fiscal sponsorship to thoroughly understand the terms of the arrangement and ensure it aligns with their goals and long-term plans. Consulting with legal and financial professionals with expertise in nonprofit law can be beneficial in navigating the complexities of fiscal sponsorship.
