If you’re starting a nonprofit project and looking for funding, you may have come across two confusing terms: fiscal sponsor vs fiscal agent. They sound similar—but choosing the wrong one could mean losing out on donations or getting tangled in tax issues you didn’t expect.

In this guide, we’ll break down what each term really means, how they work, and which one makes the most sense for what you want to accomplish.

The Basics

To understand the difference between a fiscal sponsor vs fiscal agent, it is first important to know what each term means. Sometimes the two are used interchangeably, but they actually have very distinct differences and roles. 

What Is a Fiscal Sponsor?

A fiscal sponsor is a nonprofit that’s already recognized by the IRS as a 501(c)(3) organization that provides fiscal sponsorship to charitable programs started or run by other people. It allows your project—one that doesn’t yet have its own nonprofit status—to operate under its umbrella. That means:

• Your program can receive tax-deductible donations
  
• You don’t have to form your own 501(c)(3) nonprofit (at least not yet)
  
• You get support with things like compliance, accounting, HR, etc. depending on the fiscal sponsor
  

The fiscal sponsor is legally responsible for ensuring the charitable programs under its umbrella are using funds for purposes that match up with the IRS rules for 501c3 organizations. Depending on the type of fiscal sponsorship, the fiscal sponsor might be more or less involved in the day-to-day programming and spending of the charitable project. Some fiscal sponsors offer a host of back office support like help with HR, accounting, and applying for grants, while others provide more basic services. The more services you use, typically, the higher the fees of that fiscal sponsor.

What Is a Fiscal Agent?

A fiscal agent, on the other hand, simply manages money on behalf of another group or individual. Often fiscal agents are used for short term projects like a specific grant, especially if that grant has extensive financial reporting duties. If you get a fiscal agent:

• If your project isn’t already a 501(c)(3), donations won’t be tax-deductible
  
• The agent will usually handle financial management and reporting, including paying key vendors, accounting, and financial reports to grant providers
  

Fiscal agents are usually used by smaller nonprofit organizations or groups that don’t mind not having tax deductibility for donors. For smaller nonprofits taking on a grant with more extensive reporting requirements like a state or federal grant, fiscal agents can be a lifesaver.

Fiscal Sponsor vs Fiscal Agent: The Key Differences at a Glance

Examples

Here are some examples of a fiscal sponsor vs fiscal agent. While your exact situation may not line up with these examples perfectly, it should hopefully give you a better idea of the different reasons for choosing each option. 

Example 1: Startup Charitable Program (Best Fit: Fiscal Sponsor)

Let’s say you want to launch a community wellness initiative focused on mental health access for single moms. You’re not ready to start a nonprofit and keep up with all the requirements just yet, but you need donations and grant funding to get started. A fiscal sponsor allows you to start applying for grants and asking for donations from individuals and companies that are tax deductible. And you won’t have to register to fundraise legally or send out the donation acknowledgements yourself! The fiscal sponsor takes care of those compliance requirements surrounding those donations, but you’re still able to have access to funding without donations being linked to you as taxable income.

Example 2: Small Nonprofit Accepting a Major Grant (Best Fit: Fiscal Agent)

In this scenario, let’s say you’ve run a small food pantry for a few years. Your organization is a 501c3 nonprofit organization already, but for the first time, you’ve gotten a federal government grant that will make up 40% of your organization’s budget. With a small team who will be focussed on providing food and measuring the success of the program for the grant report, there’s no one left on your team to handle the financial aspect. A fiscal agent can help you by paying vendors like the landlord for the building, running payroll for your team, and managing the financial aspects of the grant reporting like budgets and financial statements. Your organization maintains control of the funds– you just give the instructions to the fiscal agent who will carry out what you want to be done with the funds.

Is FSA a fiscal sponsor or a fiscal agent?

FSA (Fiscal Sponsorship Allies) is a fiscal sponsor. We use Model C fiscal sponsorship to help organizations that are not 501(c)(3) organizations accept tax deductible donations and grants. If you’d like to apply so that your charitable program can start fundraising legally in all 50 states without your own nonprofit status, request an application today.