Fiscal Sponsorship - Risks

Risks

Fiscal sponsorship arrangements, if not handled carefully, can be vulnerable to the criticism that they serve merely as conduits for the transmission of deductible donations to entities not qualified to receive them.

However, in the last decade, the phenomenon of fiscal sponsorship has become a common ancillary activity for public charities involved in human service, environmental, and artistic endeavors. Non-profit institutions solely devoted to fiscal sponsorship have sprung up across the country, ranging from documentary film sponsors to public health research groups to separate corporations spun off by community foundations.

Nevertheless, it is important for both sponsors and projects to understand the exact nature of their relationship.

• Sponsors are advised to ensure that the activity of sponsoring a particular project is done in furtherance of its own exempted charitable purposes, as sponsors can be exposed to some liability for the actions of any sponsored projects.

• Projects are advised to recognize that projects will be the under the control of their sponsor(s), who may be legally responsible for the operations and activities of the project.

The benefits of immediate tax-exempt status and administrative support must be weighed against the lack of autonomy and fees typically charged by the sponsor.