![]() Under agency law, the agent (tax-exempt organization) acts on behalf of the principal (project) who has the right and legal duty to direct and control the agent’s activities. The term “Fiscal Agency” similarly refers to an arrangement with an established charity to act as the legal agent for a project, but a fiscal agent does not retain the discretion and control that is a required element of fiscal sponsorship. Fees can vary widely and are typically higher if the organization is administering government grants or other funds with significant reporting obligations. Organizations that are willing to serve as fiscal sponsors typically do so for a modest fee. ![]() In Arizona, TAP-AZ, an affiliate of Vitalyst Health Foundation, acts as a fiscal sponsor to projects that meet its criteria. Meet with someone from each of those organizations and discuss your project and desired fiscal sponsorship relationship. You need to confirm the organization’s 501(c)(3) status. Start by making a list of organizations familiar with your work and add any that appear to have a similar purpose to yours. To find a fiscal sponsor that is a fit for your project you will need to do your homework. Accordingly, it is important for a fiscal sponsor and its sponsored projects to understand the exact nature of their relationship and to memorialize the terms in a written agreement. There are several models of fiscal sponsorship. This means the sponsor is legally responsible for the funds to ensure that funds paid to the sponsored project further the sponsor’s own tax-exempt purposes. To avoid this result, the sponsor must have “complete discretion and control” over the funds. In such cases, the donation will not qualify for a charitable tax deduction if the sponsored project does not have its own tax-exempt status. If the elements of fiscal sponsorship are not present, then the IRS will treat a donation of funds to a fiscal sponsor earmarked for a sponsored project as a donation from the donor directly to the project. The IRS has a strict policy against the use of “conduits”. Typically, the project will be short-term or the sponsored group is seeking tax-exempt status.The sponsor must maintain records that substantiate the use of funds for appropriate 501(c)(3) purposes.The sponsor must retain discretion and control as to the use of the funds.The sponsor must use funds received for specific charitable projects that further the sponsor’s own tax-exempt purpose.Grants/donations are given to a 501(c)(3) tax-exempt organization (the sponsor) that acts as a guardian of the funds for a project that does not have 501(c)(3) status.This arrangement is useful for new charitable endeavors that want to test the waters before deciding whether to form an independent entity as well as temporary projects or coalitions that are looking for a neutral party to administer their funds. ![]() The sponsor, in turn, accepts the responsibility to ensure the funds are properly spent to achieve the project’s goals. Fiscal sponsorship permits the exempt sponsor to accept funds restricted for the sponsored project on the project’s behalf. The term “Fiscal Sponsorship” describes an arrangement between a non-profit organization with 501(c)(3) tax-exempt status and a project, often a new charitable effort, conducted by an organization, group, or an individual that does not have 501(c)(3) status.
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