In Minnesota, nonprofit organizations are prolific. In 2916, some 33,977 organizations were registered as nonprofits. Of these, some 13,342 had their form 990 while 23,212 public charities had registered under Internal Revenue Code Section 501(c) (3). Yet, it is not essential to be recognized as a tax exempt organization under 501(c) (3). While desirable, alternatives do exist including being involved in a fiscal sponsorship nonprofit relationship.
What Is a Fiscal Sponsor?
A fiscal sponsor is an organization, nonprofit in character, acting in a capacity of overseer concerning the management of financial affairs as well as other administrative matters. It is a position of trust used to help improve and increase the volume and capabilities of charitable projects. The fiscal sponsor is beneficial for the nonprofit group with its ability to attract donors. This is essential for the survival of an organization that is charitable but not officially registered by the state as a charity. The donors in this relationship give to the fiscal sponsor who then grants them to their charitable cause.
The fiscal sponsor acts as a home base for the donations and other sources of charitable funding. It is a fiscal agent (although some define the terms separately). It utilizes its tax-exempt status for the benefit of certain non-exempt charitable organizations. To all extents and purposes, it is an umbrella group. It is not a casual relationship but a formal and formalized one.
Role of the Fiscal Sponsor
In a fiscal sponsorship non-profit organization relationship, the role of the fiscal sponsor may embrace diverse administrative functions – all on the sole behalf of the nonprofit organization they sponsor. This can include:
Receiving charitable contributions and
Handling the administration of charitable contributions
Provide accounting services
Offer strategic planning direction
In American states, including Minnesota, the fiscal sponsor can legally charge a fee for providing his, hers or its services. Some sponsors charge around 10 per cent.
The Fiscal Sponsorship Non-Profit Relationship: Consulting a Lawyer
In order to survive, many charities apply for a tax exemption status. For those who are refused the exemption, or would rather avoid this route, there is a viable option. This is to establish a relationship with a fiscal sponsor. Using the tax-exempt status of the sponsor, it will allow the charitable organization to apply for grants and to receive donations.
Organizations who decide to follow this route should seriously consider consulting a charity lawyer. The fiscal sponsorship non-profit organization relationship is a complex one. It requires legal expertise to put together and implement an agreement that will address and ensure the interests of both parties are met.
