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be exempt from federal income tax through the fiscal sponsorship of a 501(c)(3)
organization. For more on fiscal sponsorships, see Chapter 59.

b. Informal Community Project

It is also possible to do community work as volunteers without a formal
structure. This option works well if there is no money involved and volunteer tasks
are simple, like gathering school supplies and donating them to a school. Once
there is money flowing through the entity, there needs to be greater formality.

c. Work with a Community Foundation

Another option is to work with an established community foundation to put
in place a program and procedures for achieving the charitable purposes that will
be executed under the foundation’s auspices. This option is worth considering, for

example, if the planned purposes are focused on granting scholarships, responding
to the needs of people suffering from disease, or fostering research. Discussing
plans with one or several community foundations may offer practical solutions for
achieving charitable goals without incurring the costs and administrative burdens
of establishing a new nonprofit organization.

CHAPTER 4. Importance of Formality

Having a nonprofit corporation legal structure or going under the fiscal
sponsorship of another nonprofit corporation, is important for two main reasons:
1) accounting of money and 2) avoiding personal liability.

1) Accounting: If there is any money flowing into and out of the
entity, it is important to have structure and formality. If the
entity is accepting money for a particular purpose, a donor
relationship and an implied legal obligation to use the funds for
that particular purpose is created. With this obligation comes

the responsibility to account for the care and expenditure of
funds. It is necessary to open a separate bank account so that
the money is not commingled with personal money. To open a
checking account for the new nonprofit a bank will ask for a
banking resolution adopted by a board of directors. Using a
personal checking account for an organization’s business invites
suspicion from others involved and might complicate an
individual’s personal tax situation.

WASHINGTON NONPROFIT HANDBOOK -5- 2018