If you are a non-profit organization thinking about 501(c)(3) tax exempt status, but are concerned about the costs and paperwork, or if you are not yet in a position to apply (e.g. you have not filed with the state to become a corporation or you do not have a Board of Directors in place), then a fiscal sponsorship may be an alternative option for your organization.

Topics on this page:

• What is a fiscal sponsorship? 
• What does the sponsorship relationship look like? 
• What are the issues to consider before entering a fiscal sponsorship relationship?
• Fiscal sponsors in Maryland

What is a fiscal sponsorship? 

A fiscal sponsorship exists when a 501(c)(3) tax-exempt organization (the "fiscal sponsor") allows another organization to use its 501(c)(3) status. This relationship is controlled by a written agreement that is signed by the fiscal sponsor and your organization. The written agreement should lay out the relationship between the fiscal sponsor and your organization, including terms related to responsibility, funding, finances, liability, etc. Generally, your organization is able to use the sponsor’s tax exempt status as if it were its own. However, all donations received must be used in line with the fiscal sponsor’s tax-exempt purpose and in compliance with 501(c)(3) tax-exempt requirements.

What does the sponsorship relationship look like? 

There are two types of sponsorships: Comprehensive Fiscal Sponsorship and Pre-approved Grant Relationship Fiscal Sponsorship.

1. Comprehensive Fiscal Sponsorship (Internal Program model) - This is the most common fiscal sponsorship. When your organization enters this type of relationship, it becomes an internal program of the sponsor. Your organization is a part of the sponsor and not its own separate legal entity. The sponsor is responsible for administrative tasks and may require you to give up control to the sponsor’s board of directors. The sponsor will likely require compensation for handling the administrative tasks. This is usually received through charging a certain percentage of donations.
2. Pre-approved Grant Relationship Fiscal Sponsorship (Grantee model) - Under this relationship, your organization is a “grantee.” The fiscal sponsor establishes a restricted fund that will receive and hold all donations made to your organization. The fiscal sponsor then makes grants to your organization, the grantee, out of this restricted fund.

What are the issues to consider before entering a fiscal sponsorship relationship?

Much of what a sponsor will do for your organization is decided by the individual sponsor. The relationship between the sponsor and your organization is not defined under the law and may differ depending on the sponsor.

Before entering into a fiscal sponsorship relationship, your organization may want to inquire with the sponsor about its terms. You may want to review a standard agreement between organizations and the sponsor to see what rights you may be giving up and what you may continue to be responsible for. Think about the following pros and cons:

Comprehensive Fiscal Sponsorship (Internal Program model)

PROS:

• Your organization does not need to file separately for its own tax-exemption, saving your organization money and time.
• Your organization has minimal responsibility for maintaining or meeting certain federal or state filing requirements.
• The sponsor is responsible for your organization’s administrative tasks.
• The sponsor will not charge you “out of pocket” for these services, but will take anywhere from 5-15% off donations or funds raised.
• Depending on the sponsor, they may accept full legal liability for the work being done by your organization.

CONS:

• Your organization is not its own separate legal entity, but a part of the sponsor.
• You may be required to give up control and oversight of your organization to the fiscal sponsor’s board of directors, but may be allowed to continue to run day-to-day operations.
• Any funds your organization raises during the sponsorship relationship legally belong to the fiscal sponsor.
• The sponsor has final say over how those raised funds will be used.
• The sponsor has its own tax-exempt mission statement and can only accept organizations that meet or fall under this.

Pre-Approved Grant Relationship Fiscal Sponsorship (Grantee model)

PROS:

• You maintain control and do not have to give it up to the sponsor’s board of directors.
• Your organization is its own legally entity, separate from the sponsor.

CONS:

• Some legal experts worry that the Internal Revenue Service will not provide tax deductions for donors under these conditions.
• Your organization must submit reports to the sponsor detailing how the grant funds were used.
• Your organization has full responsibility for maintaining or meeting certain federal or state filing requirements.
• The sponsor has its own tax-exempt mission statement and can only accept organizations that meet or fall under this.
• Your organization accepts legal liability for the work being done.

Fiscal sponsors in Maryland

Below are three sponsors that, at the time of this writing, work with many other organizations in the State of Maryland. Each possesses their own 501(c)(3) tax-exemption and sponsor many different organizations that fall within their mission statement. This is not an exhaustive list, and you may wish to reach out to organizations that align with your organization's purpose or mission.

• Docs in Progress - Sponsors organizations that conduct documentary projects.
• Fusion Partnerships, Inc. - Sponsors organizations that are committed to making their community better and promoting social change.
• The Learners Lab Foundation - Sponsors organizations that are currently pursuing or already have 501(c)(3) status.