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Nathan Hewitt Post by Nathan Hewitt

By Nathan Hewitt on October 18th, 2019

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8 Things Fiscal Sponsorship Isn't

Fiscal Sponsorship | Tips and Tools

Fiscal sponsorship is something that a lot of folks don’t know about or realize can be an option for funding their work. At its core, fiscal sponsorship is a relationship with a 501(c)(3) nonprofit organization that enables individuals, collectives, and other groups to enjoy some of the benefits of the sponsoring organization’s nonprofit tax status.

Fiscal sponsorship might be a fundraising option that could work well for you! You should also know that there are some things that fiscal sponsorship is not. This blog post gives a broad overview of what you shouldn’t expect from fiscal sponsorship as a tool generally. We’ll also point to some of Fractured Atlas’s own fiscal sponsorship policies as a reference point for what you can expect.

Each fiscal sponsor offers something different: don’t hesitate to ask your fiscal sponsor about things you need. They may not be able to do it but they often can point you in the right direction.

Fiscal Sponsorship Is Not A Grant Application

All fiscal sponsors will have some kind of approval process that will be required before you can become fiscally sponsored by that organization. Many fiscal sponsors will ask you to complete an application to get approved for sponsorship.

An application for fiscal sponsorship is not an application for a grant, however. You shouldn’t expect that filling out an application for fiscal sponsorship and getting that application approved will lead to immediately receiving funds or a grant from the fiscal sponsor.

Fiscal sponsors generally have a mission or focus area with which their sponsored projects align. (In the case of Fractured Atlas, this is the arts!)While every organization is different, fiscal sponsors will evaluate potential projects based on their mission, planned activities, and potential impact.

Once approved, fiscally sponsored projects can start fundraising, which often includes applying for grants from foundations, corporate sponsors, and other entities, but the fiscal sponsorship application is not itself a grant application.

Fiscal Sponsorship Is Not Tax Exempt Status

You may already know that 501(c)(3) nonprofit organizations are tax-exempt. While fiscal sponsorship extends some of the benefits of the fiscal sponsor’s 501(c)(3) to sponsored individuals, collectives, and other groups, that does not make those sponsored projects tax-exempt themselves. The only way that you can become a tax-exempt entity is if you apply for and receive that status from the IRS directly.

There are a few things this all means in practice, and what you can expect from fiscal sponsorship:

Fiscal sponsorship doesn’t make you or your business exempt from income taxes.

Again, fiscal sponsorship extends some of the benefits of 501(c)(3) status, but not all of them. Fiscal sponsorship doesn’t make your organization, yourself, or whatever other type of entity tax-exempt. This also means that donations you receive through fiscal sponsorship are also considered income that you’ll need to report when and however you file your taxes.

That also means that fiscal sponsorship doesn’t make you exempt from sales taxes.

For instance, as a nonprofit organization incorporated in New York State, Fractured Atlas has a sales tax exemption certificate, what’s known as a form ST-119 for sales tax exemption for purchases made in New York. This certificate is only valid for purchases that Fractured Atlas makes directly and it’s only valid in New York. The nonprofit has to be the “purchaser of record” so this isn’t something our sponsored projects can use for their own purposes. Since we don’t handle any expenses on behalf of sponsored projects, we also can’t complete purchases for those we sponsor.

Some fiscal sponsors may make purchases on your behalf, however, sales tax exemption is not transferable.

Fiscal sponsorship doesn’t make you or your business its own nonprofit entity, and we don’t issue you a tax ID number.

You may want to form a legal entity (like an LLC, a corporation, or a nonprofit organization registered at the state level) for your business, but fiscal sponsorship won’t help you achieve this. (It won’t hurt either.) Fiscal sponsorship is a relationship with a sponsoring organization, but fiscal sponsorship doesn’t form a new entity on your behalf. Rather, fiscal sponsorship can help you fundraise under the sponsoring organization’s status and using their tax ID number and nonprofit status. If you need your own employer identification number (EIN) as a separate tax ID number for your business, you’ll also need to apply for that directly with the IRS.

In simpler terms, your fiscal sponsor is like a friend with a special driver’s license. They can bring you along for the ride, but you can’t drive the truck yourself.

Fiscal Sponsorship Is Not a Bank Account

Fiscal sponsors are nonprofit organizations, not banks, so fiscal sponsorship doesn’t create a bank account for your work. You can’t go to an ATM to get funds from a fiscal sponsor or expect to use fiscal sponsorship like a bank account to directly pay your bills.

Fiscal sponsorship will help you receive donations and grants, but those funds need to be paid to the fiscal sponsor to be considered tax-deductible contributions. That means the funds are going to be paid to the fiscal sponsor first, and then the fiscal sponsor will have some mechanism for getting the funds to you to cover charitable, mission-related expenses.

For example, let’s say Link wants to donate to Zelda for her music project, and Zelda needs to pay Mario for his composing and arranging work. Link wants to make a tax-deductible donation but this is Zelda’s first project, and she doesn’t have 501(c)(3) status.

This is where the Fiscal Sponsorship Organization (FSO) gets involved and sponsors Zelda’s project, since it aligns with their artistic mission. FSO can receive a tax-deductible donation from Link, since they have federal nonprofit status. The funds can then be granted to Zelda to pay Mario for his sublime compositional talents.

Fiscal sponsorship is a way for the donor, the artist, and their collaborators to get what they need.

A low-angle view of several skyscrapers.Fiscal sponsorship can sometimes help get corporate sponsorships, but they aren't the same thing.

Fiscal Sponsorship Is Not Corporate Sponsorship

Corporate sponsorship is a great way to get funding to support your work, but fiscal sponsorship is not the same thing as corporate sponsorship. When you seek corporate sponsorship, you’re asking a commercial business to support your work with direct monetary support through donations or grants.

A fiscal sponsor helps facilitate receipt of funds from other sources, including corporate sponsors, but won’t be a “sponsor” in the way the term is typically used. Instead, a fiscal sponsor is supporting your work by receiving donations or grants on your behalf.

That means can access many sources of funding that are only available to 501(c)(3) organizations and you can offer your supporters the ability to make tax-deductible donations to support your work.

Many corporate sponsors will only support organizations with 501(c)(3) status, so fiscal sponsorship can help you access this funding.

As an aside, it’s important to note that corporate sponsorship can go through a fiscal sponsor, but advertising cannot.

Fiscal Sponsorship Is Not Foundation Funding

Foundations are typically organizations whose primary purpose is to provide direct grant funding to 501(c)(3) organizations, and in some cases, individuals or other types of entities.

A foundation might also be a 501(c)(3) organization like a fiscal sponsor, but a foundation usually differs from most 501(c)(3) organizations that engage in some kind of programming driven by the organization’s mission. Fiscal sponsorship is generally a part of such an organization’s programming, so an organization’s fiscal sponsorship program will also reflect the organization’s mission.

For example, Fractured Atlas’s mission is to serve artists, so all the projects we sponsor must be artistic or creative in some respect.

Like with corporate sponsorship, you shouldn’t expect that a fiscal sponsor is going to provide direct funding to support your work. Like corporate sponsors, many foundations will only grant funds to organizations with 501(c)(3) status, so fiscal sponsorship can be a powerful tool for individuals and other groups to access foundation funding.

Fiscal Sponsorship Is Not A Grant Writing Service

Writing grants is an important part of funding your artistic practice. Foundations, government agencies, local arts funders, and businesses can be very helpful as you try to make your work happen.

Once you have found an opportunity that matches your goals, it is time to sit down and put pen to paper. You can write the grant yourself, or if you don't have the time or expertise, you can pay someone to assist you with grant writing.

In order to have the ability to apply for opportunities that are usually only available to 501(c)(3) organizations, many artists will become fiscally sponsored. This allows them to take advantage of the fiscal sponsor’s 501(c)(3) status to apply.

Many fiscal sponsors will ask to review all grant applications. This ensures that all the relevant policies and procedures are followed while also providing an opportunity to have your grant application seen by an experienced person who reviewed a lot of grants, both successful and unsuccessful.

It’s an opportunity to provide helpful feedback to improve your application’s chances of success.

Fiscal Sponsorship Is Not A Development Department

A good fundraising team, however small, is essential if you want your project or organization to grow. Most fiscal sponsors, however, do not lead the fundraising efforts of their projects on the ground. Development is thankless work, from grant writing, solicitation letters, and donor events, to phone calls, email lists, and more. Raising money takes a lot of time and effort, but with a fiscal sponsor, you are not alone.

As a fiscally sponsored project, you work with the Fiscal Sponsorship Staff at your fiscal sponsor. Often, as with grant applications, they will review solicitation letters, websites, and other content, and will be able to provide helpful feedback.

They also are involved in the process of preparing receipts for donors and providing other administrative support! Best of all, some fiscal sponsors provide tools, like crowdfunding platforms or fundraising templates, to help you get started.

You may decide you need to hire a dedicated development department, but fiscal sponsorship can take at least some tasks off your team's plate.

Fiscal Sponsorship Is Not A Database of Potential Donors

When you are first getting started with fundraising, it’s not always easy to know where to begin. You know there are people out there who would be interested in your work. Is there a list of people somewhere who might give to your project? How do you find names for your mailing list?

Unfortunately, there aren’t huge donor databases out there. Even if there were, fundraising thrives on human connection.

While occasionally you might run into a giving circle that is focused on your area of work, in most cases, fundraising is about old-fashioned relationship-building.

Fiscal sponsors may have received donations from hundreds of donors, but those donors made the gift because of a personal connection to a fiscally-sponsored artist, collective, or small arts organization. Thankfully, you can build personal connections, too!

Most projects begin by looking at who they are connected with in the present, and then building a strategy for how to connect with these potential donors. Larger projects or organizations can reach out to a professional prospect researcher or prospect research firm for help determining how best to use their resources to raise money for their projects.

Over time, projects build up their own database of donors who have supported their project, and by stewarding those relationships they can build a foundation for years to come.

Fiscal Sponsorship Is A Useful Tool for Many

There are infinite things that Fiscal Sponsorship is not—but there are also many different kinds of fiscal sponsorship! We recommend our Introduction to Fiscal Sponsorship for an overview.

Watch this webinar!

And you can always reach out at support@fracturedatlas.org to learn more about our program and how it can help you fund your art.

[This blog post was a collaboration between Nathan Hewitt and Arno Mokros, Program Associates at Fractured Atlas.]

More posts by Nathan Hewitt

About Nathan Hewitt

Nathan Hewitt is a nonprofit arts professional and contemporary musician. Prior to Fractured Atlas, Nathan worked with Donorly, Actors Theatre of Louisville, the Norton Center for the Arts, Naco Wellness Initiative, WRFL Radio Free Lexington, and Binge Culture Collective. Originally from Indiana, he is a former Gaines Fellow at the University of Kentucky. Nathan believes that artists, organizers, and nonprofit organizations together have the power to create a more just and equitable society.