Nonprofits and Fiscal Sponsorships

Nonprofits and Fiscal Sponsorships

HSC Texas Leadership Pipeline Conference

June 24, 2013

Jesús Pantel Consulting and Grant Writing

HSC Texas Leadership Pipeline Conference

June 24, 2013

Jesús Pantel Consulting and Grant Writing

What is a nonprofit?What is a nonprofit?

• Form of doing business where mission, not money, is the most important factor

• To obtain 501(c)(3) status, must register at state level as a corporation, trust, or association

• Must have a board of at least three people that meets regularly

• Must file annual financial paperwork or face automatic revocation

• Form of doing business where mission, not money, is the most important factor

• To obtain 501(c)(3) status, must register at state level as a corporation, trust, or association

• Must have a board of at least three people that meets regularly

• Must file annual financial paperwork or face automatic revocation

Nonprofit growth rates

Nonprofit growth rates

• ~1.1 million 501(c)(3)s in 2011 Doesn’t count those under $5,000

• 55,319 501(c)(3) applications in 2011 Smallest amount since 1995 49,677 were approved

• ~50,000 new nonprofits each year

• ~1.1 million 501(c)(3)s in 2011 Doesn’t count those under $5,000

• 55,319 501(c)(3) applications in 2011 Smallest amount since 1995 49,677 were approved

• ~50,000 new nonprofits each year

Cost of running a nonprofit

Cost of running a nonprofit

• Board and staff

• Annual financial paperwork

• Setup filing costs State and Federal filing

o $25 State of Texaso $400 or $850 IRS for revenues under or over $10,000

Lawyer

• Board and staff

• Annual financial paperwork

• Setup filing costs State and Federal filing

o $25 State of Texaso $400 or $850 IRS for revenues under or over $10,000

Lawyer

Alternatives to nonprofit creation

Alternatives to nonprofit creation

• Program of an existing nonprofit

• Fiscal sponsorship

• Program of an existing nonprofit

• Fiscal sponsorship

Why use fiscal sponsorship?

Why use fiscal sponsorship?

“At least 15 percent of the time that I would have had to spend on administrative work [without a fiscal sponsor] is put into fundraising, management, programming, and other critical activities that a director needs to do.”

- Hez Norton of Resource Generation

“At least 15 percent of the time that I would have had to spend on administrative work [without a fiscal sponsor] is put into fundraising, management, programming, and other critical activities that a director needs to do.”

- Hez Norton of Resource Generation

What is fiscal sponsorship?

What is fiscal sponsorship?

• A 501(c)(3) nonprofit organization (fiscal sponsor) allows an individual or group (sponsored project) with a similar mission to use the fiscal sponsor’s tax-exempt status

• Allows sponsored projects to receive tax deductible contributions and to get funding from foundations, government agencies, and others

• A 501(c)(3) nonprofit organization (fiscal sponsor) allows an individual or group (sponsored project) with a similar mission to use the fiscal sponsor’s tax-exempt status

• Allows sponsored projects to receive tax deductible contributions and to get funding from foundations, government agencies, and others

Who controls the project?Who controls the project?

• The sponsored project is autonomous so controls project execution

• The fiscal sponsor is ultimately responsible for the project Can refuse to pay ineligible expenses Can refuse to sign contracts

• Fiscal sponsor’s board votes whether to take on the sponsored project

• The sponsored project is autonomous so controls project execution

• The fiscal sponsor is ultimately responsible for the project Can refuse to pay ineligible expenses Can refuse to sign contracts

• Fiscal sponsor’s board votes whether to take on the sponsored project

Fiscal sponsorship fees

Fiscal sponsorship fees

• Fees are usually around 5-10%

• Fiscal sponsors may take all out of the first payment or from each payment

• Fiscal sponsors may reimburse for expenses or distribute up front

• Fees are usually around 5-10%

• Fiscal sponsors may take all out of the first payment or from each payment

• Fiscal sponsors may reimburse for expenses or distribute up front

Benefits of fiscal sponsorship

Benefits of fiscal sponsorship

• Reduced cost to sponsored project Increased focus on mission Fiscal sponsors broaden mission reach More grassroots and minority projects

• Low-risk way for funders to test new ideas or funding solutions

• Reduced cost to sponsored project Increased focus on mission Fiscal sponsors broaden mission reach More grassroots and minority projects

• Low-risk way for funders to test new ideas or funding solutions

Drawbacks of fiscal sponsorship

Drawbacks of fiscal sponsorship

• Not recognized by all funders

• Fiscal sponsors with narrow missions could end up competing against sponsored projects Limited funding Blurring of lines between projects

• Contracts could be held up while other sponsored projects fulfill their requirements

• Limited guidance from the IRS

• Not recognized by all funders

• Fiscal sponsors with narrow missions could end up competing against sponsored projects Limited funding Blurring of lines between projects

• Contracts could be held up while other sponsored projects fulfill their requirements

• Limited guidance from the IRS

Fiscal sponsorship and funders

Fiscal sponsorship and funders

• GrantStation.com

• Foundation Center Online Directory Foundation Center libraries Main library

• Speak with the funder

• GrantStation.com

• Foundation Center Online Directory Foundation Center libraries Main library

• Speak with the funder

IRS guidanceIRS guidance

“The IRS should coordinate with the Department of Treasury and the Office of Chief Counsel on the issuance of precedential guidance about the use of tax-compliant alternatives to the creation of new Section 501(c)(3) organizations, such as fiscal sponsorships and donor-advised funds.”

- 2012 IRS report

“The IRS should coordinate with the Department of Treasury and the Office of Chief Counsel on the issuance of precedential guidance about the use of tax-compliant alternatives to the creation of new Section 501(c)(3) organizations, such as fiscal sponsorships and donor-advised funds.”

- 2012 IRS report

IRS guidanceIRS guidance

• Limited Guidance 1966 ruling Colvin book

• IRS Publication 3833 Disaster Relief ACT recommends adding language to Form 1023

• Limited Guidance 1966 ruling Colvin book

• IRS Publication 3833 Disaster Relief ACT recommends adding language to Form 1023

Fiscal sponsorships in action

Fiscal sponsorships in action

• Type of projects 45% arts and culture 32% no specific projects 23% environmental/sustainable growth

• Funds administration 77% write checks weekly or biweekly 8% write checks more than once a week 6% write checks on demand 2% transfer funds immediately

o 70% do not advance funds• 18% will in an emergency

• Type of projects 45% arts and culture 32% no specific projects 23% environmental/sustainable growth

• Funds administration 77% write checks weekly or biweekly 8% write checks more than once a week 6% write checks on demand 2% transfer funds immediately

o 70% do not advance funds• 18% will in an emergency

Fiscal sponsorship maintenance

Fiscal sponsorship maintenance

• Some sponsored projects never obtain 501(c)(3) status Less than half for large fiscal sponsors More likely with smaller fiscal sponsors 23 year old sponsored project

• Most sponsored projects not allowed to raise funds in their own name 75% of Community Foundations and Fiscal Sponsors 38% of Arts and Media nonprofits 28% varies by project

• Some sponsored projects never obtain 501(c)(3) status Less than half for large fiscal sponsors More likely with smaller fiscal sponsors 23 year old sponsored project

• Most sponsored projects not allowed to raise funds in their own name 75% of Community Foundations and Fiscal Sponsors 38% of Arts and Media nonprofits 28% varies by project

Fiscal sponsorship fit?

Fiscal sponsorship fit?

1. A biology nonprofit sponsoring:a) A project focused on the elderly

1. A biology nonprofit sponsoring:a) A project focused on the elderly

Fiscal sponsorship fit?

Fiscal sponsorship fit?

1. A biology nonprofit sponsoring:a) A project focused on the elderlyb) A chemistry project

2. An artistic project being sponsored by an environmental organization

3. An economic development nonprofit sponsoring a car dealership

1. A biology nonprofit sponsoring:a) A project focused on the elderlyb) A chemistry project

2. An artistic project being sponsored by an environmental organization

3. An economic development nonprofit sponsoring a car dealership

Contact Information

Contact Information

Jesús Pantel Consulting and Grant Writing

Jesus@JesusPantel.com

Website: www.JesusPantel.com

Blog: JesusPantel.wordpress.com

Jesús Pantel Consulting and Grant Writing

Jesus@JesusPantel.com

Website: www.JesusPantel.com

Blog: JesusPantel.wordpress.com