FAQ
Fiscal sponsorship, at its core, is when a non-profit organization extends its tax-exempt status to select groups engaged in activities related to the organization’s mission. According to the National Network of Fiscal Sponsors, fiscal sponsorship has evolved as an effective and efficient mode of starting new non-profits, seeding social movements, and delivering public services. Fiscal sponsorship generally entails a non-profit organization (the “fiscal sponsor” and, in this case, Future Coalition) agreeing to provide administrative services, oversight to, and assume some or all of the legal and financial responsibility for the activities of groups or individuals engaged in work that relates to the fiscal sponsor’s mission (the “fiscal project”).
Using a fiscal sponsor is an excellent option for a group or organization that needs to manage financial donations, grants, and transactions but is not quite ready to become an independent organization, such as a 501(c)(3) or 501(c)(4) non-profit. The fiscal project has autonomy over its programming; they are the experts in their work. Fiscal sponsors offer financial oversight and support at baseline, although Future Incubator provides additional support for fiscal projects.
501(c)(3) funding is exclusively used for charitable and educational purposes. Virtually no political work (e.g., lobbying, candidate support work) is allowed. Donations to a 501(c)(3) organization are tax-exempt by the IRS, so the rules are strict. In comparison, donations to a 501(c)(4) organization are *not* tax-exempt. C4 organizations are allowed to engage in political work. To learn more about the distinctions between 501(c)(3) and 501(c)(4) funding, visit the Donorbox Nonprofit blog post linked here or review our Glossary for more information.
Informative infographic by Donorbox Nonprofit comparing 501(c)(3) and 501(c)(4) organizations.
When you enter a fiscal sponsorship relationship as a project, you come under the umbrella of that organization, and you will have the same tax status as your fiscal sponsor. If you enter a fiscal sponsorship agreement with Future Coalition, you will have the same status it has: a 501(c)(4) organization with the ability to fundraise 501(c)(3) funds.
Non-profit organizations in the United States do not pay taxes. However, organizations are legally required to file detailed tax returns annually with the IRS – Form 990. Fiscal sponsors are responsible for these filings. Fiscal projects do not need to file their own or separate tax returns. The fiscal project’s activities are reported as part of the fiscal sponsor’s Form 990.
Simply stated, fiscal sponsors place responsibility for implementing programs in the hands of project leaders while ensuring appropriate fiduciary oversight.
As a fiscal project, your responsibility is to ensure you keep track of your spending and your activities in an organized way and keep your fiscal sponsor up to date on financial and operational matters so that your fiscal sponsor can report it appropriately as part of completing Form 990.
The fiscal sponsorship fee is 8% for fiscal projects with employees or contractors and 5% for all other projects.
- 501(c)(3) organization: A 501(c)(3) organization is typically known as a charitable organization. 501(c)(3) organizations can receive contributions that are tax-deductible. To qualify, these organizations must not be run for private interests, and none of their net earnings can go to private shareholders or individuals. For more in-depth information, you can visit the IRS website.
- 501(c)(4) organization: The term 501(c)(4) refers to a specific section of the U.S. federal income tax code that relates to social welfare organizations. Corporations recognized by the IRS as 501(c)(4) are exempt from paying federal income taxes. However, unlike 501(c)(3) charitable organizations, contributions made to 501(c)(4) groups are not tax-deductible for the person or corporation making the donation. These organizations are permitted to engage in political activities, including lobbying and participating in campaigns. This also includes donating to political committees involved in political efforts like ballot measures or referendums. For further information, Ballotpedia provides a comprehensive overview.
- Fiduciary oversight: According to Finance Strategists, fiduciary oversight entails overseeing and managing the conduct of individuals or entities tasked with managing assets or resources entrusted to them for others.
- Fiscal sponsorship fee: A fiscal sponsor charges a monthly or yearly administrative fee based on the donations received by the sponsored project. This fee is calculated as a percentage of donations a project receives. For Future Incubator projects, the sponsorship fee is 8% for fiscal projects with employees or contractors and 5% for all other projects.
- Form 990: Form 990 is a tax form that all 501(c)(3) tax-exempt charitable and nonprofit organizations in the United States must file annually with the Internal Revenue Service (IRS). Form 990 aims to increase financial transparency by including details on revenue, expenditure, and income, alongside information used to evaluate if a nonprofit meets the federal requirements for-exempt status. For more information, visit the Library of Congress Resource Guide.
- Tax-deductible: Tax-deductible refers to certain expenses or items that can lower the amount of tax you need to pay. These deductions are taken away from your total taxable income, which can significantly decrease the taxes you owe. A common example is charitable donations. However, what you’re allowed to deduct and how much can differ based on the tax rules of the area and whether the deductions are for an individual or a business. For more detailed information, you can visit Cornell Law School’s website.
- Tax-exempt: A tax exemption means that certain types of income, earnings, or even specific people or organizations don’t have to pay taxes. For instance, non-profit organizations that meet certain criteria don’t have to pay income tax, thanks to a special status given by the IRS. For more information, visit Tax Foundation.
- The Internal Revenue Service: The Internal Revenue Service (IRS) is a part of the U.S. Department of the Treasury. Its main duties include enforcing and managing federal tax laws, handling tax returns, conducting audits, and assisting American taxpayers.