Page 208 - Washington Nonprofit Handbook 2018 Edition

PART 9. FISCAL SPONSORSHIPS, JOINT VENTURES AND OTHER
COLLABORATIONS

CHAPTER 58. Working With Others

It is often advantageous, for financial or programmatic reasons, to work with
other organizations to further your own organization’s objectives. A successful
collaboration can result in cost savings and improved efficiency for your
organization and can provide access to needed skills and resources. In arranging
these relationships, however, you must take care not to jeopardize your
organization’s tax-exempt status by ceding too much control to others or by
unwittingly furthering noncharitable purposes. The following chapters outline two
common ways in which organizations work with others: through fiscal
sponsorships and contractual collaboration (including joint ventures). For a
discussion of nonprofit mergers and consolidations, see Chapter 78.

CHAPTER 59. Fiscal Sponsorships

Sometimes, when one or more individuals begin conducting charitable
activities, start up a new organization or conduct a one-time or short-term project,
they find that they need tax-exempt status to receive donations and grants to
continue the work. Fiscal sponsorship is a way for that new project or organization
to have the advantages of tax exemption without having to apply to the IRS. In a
fiscal sponsorship a 501(c)(3) organization (“Sponsor” or “sponsoring organization”)
enters into an agreement with another organization or group that does not have
tax-exemption (“Sponsored organization”), in which the Sponsored Organization
can be covered by the Sponsor’s tax-exemption. This gives a Sponsored
Organization the opportunity to apply for and receive tax exemption while carrying
out charitable activities. Sometimes this arrangement is referred to as a “fiscal
agency.” However, this term should not be used to describe this type of
relationship, because it implies control by the sponsored organization over the
sponsoring organization and is disfavored by the IRS.

There are two main reasons that nonprofit organizations seek 501(c)(3)
status. First, many donors give money to tax-exempt organizations with the
expectation of taking a charitable deduction for their donations on their federal
income taxes. Some organizers of projects cannot attract these donors because
their projects have not been qualified as tax-exempt (and may never be). Second,
usually grant-making entities, such as foundations and government entities, have
policies or legal constrictions that require grants only to 501(c)(3) organizations that

WASHINGTON NONPROFIT HANDBOOK -197- 2018