The nonprofit sector is a huge force in the U.S. economy, and charitable giving by individuals, foundations and businesses totals billions of dollars each year.
Those looking to tap into this flow of charitable giving, or simply pursue their own passion on a charitable cause, often think they need to form their own nonprofit. However, the administrative and financial costs of creating, maintaining and managing a “501(c)(3)” public charity are not insignificant.
There is an alternative to achieving your charitable goals: It’s called fiscal sponsorship.
Fiscal sponsorship allows a person or organization to work with an existing 501(c)(3) instead of starting their own nonprofit, and then, under a carefully structured arrangement, they are able to receive the legal and tax benefits of the “sponsor” 501(c)(3) for their own charitable goals.
Fiscal sponsorship is a contractual relationship that can help an artist fund a new mural, a filmmaker raise money for production and equipment, a neighborhood group to hold a crowdfunding campaign for cancer research, or a small business to create and distribute products to areas impacted by a recent natural disaster.
Because the legal relationship between the 501(c)(3) sponsor and the recipient is created by contract, there must be a comprehensive legal document that properly defines the relationship between the two parties. If the relationship is not carefully structured and managed, the IRS could penalize not only the parties in the fiscal sponsorship relationship, but also any donor who contributed to the nonprofit endeavor because their charitable donation would no longer be considered tax-exempt.
Today, fiscal sponsorship is flourishing, particularly in the creative industries, because it is a great way to benefit multiple participants towards reaching artistic charitable goals. At the Law Offices of Daniel T. Goodwin, we have carefully researched the tax laws that support fiscal sponsorship, and have assisted numerous clients to ensure they are in compliance with these laws.
To schedule a consultation with a member of our team regarding your fiscal sponsorship matter, please call the us at (303) 763-1600 or submit our online contact form.