What is fiscal sponsorship and how does it work?

 

In the United States, a nonprofit organization can only accept and manage tax-exempt donations if it has 501c3 status from the IRS. When a new nonprofit spins out from another nonprofit, it is standard for the new nonprofit to operate for awhile under “fiscal sponsorship” - meaning, under the 501c3 status of an existing nonprofit.

OF/BY/FOR ALL became an independent organization in February 2019 and applied for 501c3 status (which usually takes 6-12 months to receive). The Museum board agreed to fiscally sponsor OF/BY/FOR ALL until we received our own 501c3 status as a federally-recognized nonprofit. The Museum worked with nonprofit lawyers to develop a standard fiscal sponsorship agreement governing the actions of both organizations during this time.

During fiscal sponsorship, the Museum holds the funds of OF/BY/FOR ALL and accepts tax-exempt donations on its behalf. The Museum is acting as an umbrella organization for tax purposes, but the Museum has not and does not provide any Museum funds to OF/BY/FOR ALL. All donations to OF/BY/FOR ALL that are held by the Museum are clearly designated and restricted as such. OF/BY/FOR ALL pays the Museum a standard fiscal sponsorship fee for this service.

In August 2019, OF/BY/FOR ALL received 501c3 status from the IRS. Yay! The Museum and OF/BY/FOR ALL are now in the process of ending fiscal sponsorship. As of November 1, 2019, the two organizations will be separate, independent 501c3 nonprofits.