Fiscal Sponsorship: A Solution for New Nonprofits

You just filed for your 501(c)3 designation so the IRS will recognize your group as a tax-deductible nonprofit organization. Congrats!

Now you’re ready to start fundraising, but there’s a catch: Your donors can’t give to a tax-exempt organization, and you’re not eligible for grants yet because you aren’t officially recognized as a not-for-profit entity. You’re ready to get your nonprofit’s fundraising off the ground, but you’re stuck until you hear back from the IRS. However, there is a way you can apply for grants and raise tax-deductible funds: fiscal sponsorship.

A fiscal sponsor is a tax-exempt organization that agrees to receive funds and conduct other administrative functions on your group’s behalf. Your fiscal sponsor processes your donations and then disburses the funds to your organization. Sometimes a sponsor will take a small administrative fee for processing the transactions, but it’s still a great option for organizations that need to raise money now and want to make sure their donors can give knowing their gift is tax-deductible.

Who can serve as a sponsor?

Technically, any 501(c)3 can be a fiscal sponsor. The National Council on Nonprofits recommends that you look for an organization with a mission that is similar to yours. Be sure that both parties agree to the terms of the partnership, and clearly outline those terms in a written agreement to make the sponsorship formal. The Foundation Center has tips to help you determine who can best serve as your fiscal sponsor, as well as resources to ensure the partnership is a positive experience for both the sponsor and the organization being sponsored.

What does fiscal sponsorship look like for an organization?

Honor Flight Capital Region is one such nonprofit. Honor Flight celebrates World War II veterans by arranging special trips for them to visit their memorial in Washington, DC. The experience provides veterans from America’s Greatest Generation with a feeling of camaraderie during their special day of honor. As you can see on Honor Flight’s website footer and donation page, the organization clearly states that it’s fiscally sponsored. Beyond that, the nonprofit functions just as any other nonprofit would. It can solicit tax-deductible donations through its DonateNow page and apply for grants.

How do you find a fiscal sponsor?

The Fiscal Sponsorship directory lists organizations that are ready and willing to serve as a sponsor. For more information on how a sponsorship works, visit the Society for Nonprofit’s resource center.

Steps to Receive Fiscal Sponsorship:

  1. File for your organization’s 501(c)3 status, if you haven’t already.
  2. Start the search for a fiscal sponsor.
  3. Once you’ve found the right sponsor, formalize the sponsorship with a written agreement.
  4. Create your fundraising strategy, and get the right tools for collecting online donations, communicating with your supporters, and organizing special events.
  5. Start collecting donations through your fiscal sponsor.
  6. Don’t forget to thank your new donors!
  7. Your fiscal sponsor should take care of sending donation receipts on your behalf.
  8. Start testing different fundraising ideas, and continue to update your donor communications and donor thank-you messages.

By Melissa Raimondi

Updated: October 11, 2021

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