Until the mid-1990’s, only one pathway was widely assumed to be safe to start a new charitable enterprise eligible to receive tax-deductible donations and grants:
Form a free-standing nonprofit corporation and apply to the Internal Revenue Service to be officially recognized as a tax-exempt 501(c)(3) organization – and wait months or longer for approval.
Eventually, various alternative arrangements were attempted, including using an existing 501(c)(3) group as a “fiscal agent” or “pass-through” to qualify for charitable dollars.
Initially, these strategies were roundly criticized by foundation lawyers and the IRS itself as “traps for the unwary” and “conduit” schemes. But to meet the needs of a changing world, there had to be more nimble ways for people to organize themselves at the grassroots and raise money for the common good and not for profit.
This inspired a group of us, leaders in the arts, humanities, and community services, foundation executives, and tax-exempt lawyers, to invent the concept of “fiscal sponsorship” and identify the most promising ways to safely and efficiently manage groups of charitable projects, using models already approved by the IRS.
I was designated to write the book, Fiscal Sponsorship: 6 Ways to Do It Right, published in 1993, again in 2005, and now in its third, 2019 edition.
Here’s my shorthand definition of fiscal sponsorship. It is not one thing. And it is not new.
- It is a collection of the best ways that larger and well-established nonprofits,
- can help smaller and newer groups serve the needs of our society today,
- by gaining access to tax-exempt donations and grants,
- using models that have been approved by the IRS and the courts for decades.
Predictions for the future
In this year, 2025, the challenges to our society, economy, natural world, and democratic structure are unprecedented. People are in motion, gathering everywhere -- electronically and in the streets. Fortunately, fiscal sponsorship has lowered the barriers for people with new ideas to enter the nonprofit world.
Looking into the middle distance, I predict these models will thrive as vehicles for positive change, “no matter what party is in power” (Edna St. Vincent Millay).
1. The fiscal sponsor world will become stronger, as it is a free marketplace rewarding the best sponsors, the best projects, and the best professional managers. Most projects are portable and can move on to a more suitable sponsor or become independent. The cadre of experienced fiscal sponsor administrators will become an expanding labor market of the best nonprofit professionals. They participate in weekly Fiscal Sponsor Conversations and other mutual training Zoom sessions to sharpen their skills.
2. Fiscal sponsors will continue to function at many levels of scale: community, city, county, state, nation and worldwide. They will enable Americans to support projects of their choice with tax-deductible donations — at home or abroad – during times when those in need are stranded by government cutbacks.
3. Finally, fiscal sponsorship will survive this moment when many institutions are under threat. The tools of fiscal sponsorship have been developed for and used by charitable entrepreneurs of all religious, political, or ideological stripes, from the US Conference of Catholic Bishops to Newt Gingrich to Rockefeller Philanthropy Advisors. Fiscal sponsorship has such a vast nonpartisan base in our society that any attempt to thwart its growth will be met by broad resistance grounded in the incredible force of American generosity.
Fiscal sponsorship is here to stay.
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