In the fiscal sponsorship space, it’s common to start out with questions. In this article we compiled a list of the top ten questions that we frequently receive from charitable organizations who are either just getting started, or from organizations that need a refresher on how your fiscal sponsor is able to assist.

Questions about Donations & Grants

What can I spend charitable donations on for my organization?

In short, charitable donations have to be used for things that directly support your mission or programs. If the expense helps you run your project and deliver services, it is usually allowed. 

Some common examples of permitted expenses include:

• Program costs: materials, supplies, technology, equipment, event costs, mileage to or from charitable events or rentals for space that supports your charitable activities. 
• Day to day operations, this can include:
  • Insurance
  • Payroll or contractor payments
  • Accounting, bookkeeping, and other financial services
  • Software you need to operate your organization (email platforms, CRM systems, project management tools, etc.)
  • Marketing and outreach materials – as long as they support the mission
  • Professional services that assist with legal help, fundraising, web development, or design
• General overhead expenses: rent, utilities, office supplies

While working with a fiscal sponsor, everything you spend charitable funds on needs to be reasonable and clearly tied to the charitable project. If it’s unclear how an expense is related to your charitable mission, your fiscal sponsorship representative will reach out for more information.

What can I not spend charitable donations on?

Basically, you cannot use donations for anything that benefits you personally or isn’t related to your mission. 

Some common examples of expenses that are not allowed include:

• Personal bills or purchases – rent, utilities, groceries, clothing, personal travel
• Political campaign contributions or lobbying expenses.
• Paying friends or family, unless they are legitimate contractors that you have entered into a formal agreement with and can provide all necessary documentation.
• Benefits to individuals who are not a part of the actual, charitable work of your project.
• Gas, even if it is for traveling to or from charitable programming (instead, this needs to be submitted as a mileage reimbursement).

How quickly can we start fundraising?

Each fiscal sponsor is different, but typically once your application is accepted by a fiscal sponsor, you can start fundraising within 30 days. Fiscal Sponsorship Allies allows charitable programs to start fundraising in as little as one day of your signup being completed. Our application process involves a form, as well as an introductory Zoom call to learn more about your charitable work and answer your questions. From there, we run a background check with your consent and send you a contract to establish the relationship legally.

Does my fiscal sponsor help with grant applications? Do they have to approve all of my grant applications that are submitted?

Yes, most fiscal sponsors can help with grant applications and they do need to review and approve grants that you plan on applying for. This is an important part in keeping everything compliant and ensuring your project is eligible for potential funding under the fiscal sponsor’s 501c3. It is typically a straightforward process to keep it simple and streamlined for both the sponsor and sponsee. The process is slightly different for each fiscal sponsor, but this is FSA’s process in handling grants:

Send the grant opportunity to your fiscal sponsor first.

Before you begin applying, your fiscal sponsor will want to take a look at the grant guidelines to make sure that your project is eligible to receive the funds as a fiscally sponsored organization. This step protects both you and the sponsor from pursuing funding that doesn’t align with charitable or legal requirements. No one wants to waste their time filling out a long application only to find that they aren’t eligible for the grant.

Your program manager reviews the opportunity.

Once your sponsor receives the grant link or information, the program manager will check for:

• Eligibility requirements
• Funding restrictions
• Reporting obligations
• Mission fit for the organization

Gathering the documents you may need.

Many grant applications ask for information that the sponsored organization may not be able to provide. This is where the fiscal sponsor is able to provide the following:

• Form 990
• Audited financial statements
• List of board members
• Organizational policies
• Fiscal Sponsorship Agreement

With many fiscally sponsored projects being newer to the space or smaller in overall size, they often don’t have this information available to share on their own – and this is where the fiscal sponsor steps in. They are able to provide any documents that need to come from the sponsor, and make sure that you are submitting the correct versions. Your fiscal sponsor is your partner in the grant process. They can help you navigate eligibility and ensure that everything is submitted correctly to align with your organization’s needs. However, fiscal sponsors typically won’t write the program side of the grant application for you. You’ll need to handle describing your program and other program-related questions the grant provider may have.

Questions about Payments Through Fiscal Sponsorship

What documentation does my fiscal sponsor need when I submit a payment request?

When you submit a payment request, your fiscal sponsor needs enough information to understand what the expense is and how it relates to the charitable activity for your organization. The goal isn’t to make it more difficult for you to spend charitable funds, it is to keep the project compliant and ensure that everything is clearly documented for compliance purposes. Not documenting how expenses are charitable can jeopardize a fiscal sponsor’s tax exempt status, so it’s vitally important. Here’s what you’ll typically need to include:

An invoice or receipt

Whether it is a vendor invoice or a reimbursement receipt, it should include the following information:

• The item/service that was purchased for the organization, itemized if there are multiple items on one invoice/receipt
• The total amount that was spent on the expense 
• The vendor’s contact information to ensure they receive the payment request information 
• The date of the purchase included in the invoice or reimbursement receipt
• For reimbursements, you’ll need to show proof of payment like a receipt

It is possible that a member of the fiscal sponsorship team will reach out to you for further information about the expense or reimbursement to ensure that the funds are being spent charitably – the best course of action is to always have documentation and keep accurate records. If you’re missing a receipt or invoice, get in contact with your fiscal sponsorship representative to learn about alternative forms of documentation we accept.

A short explanation of how the expense supports your charitable mission

2. This doesn’t have to be long – one or two sentences is usually enough. Just explain how the purchase ties back to your project or organizational goals. Here are a few examples:

• ​​“These materials will be used in our community workshops, which advance our mission to expand access to education for under-resourced youth.”
• “The software subscription supports our ability to collect program data and communicate with participants, helping us deliver and evaluate our charitable services effectively.”
• “This equipment is necessary for executing our environmental outreach events, which directly further our project’s goal of increasing local conservation awareness.”

Can we transfer funds from our fiscal sponsor into our organization’s separate bank account?

The short answer: not usually.

Fiscal sponsors can’t move charitable funds into your organization’s bank account or a personal bank account unless certain conditions are met. Here is how it works:

With your fiscal sponsor being a registered 501c3 organization, they receive and hold charitable donations on behalf of the project. Because the fiscal sponsor is responsible for reporting, compliance, and proper use of the funds, money can’t just be released for you to hold elsewhere. 

Funds can only be transferred to an external bank account when:

• It is a part of an approved payment request.
  • If you’re reimbursing your organization for an expense that has already been paid, or if the payment needs to go to the organization’s account to pay a specific, documented charitable expense. 

OR 

• Your organization has its own 501c3 status.
  • If you’re a fully formed nonprofit organization with 501c3 status received from the IRS, you have a bit more flexibility. A registered 501c3 organization can request funds be granted to their organizational bank account because they have the freedom and meet the requirements to hold those charitable donations without issue. 

Questions about Fiscal Sponsors

What do fiscal sponsors require?

Working with a fiscal sponsor can be a great launchpad, but there are a few things that they will expect from you to keep everything running smoothly and in compliance. Before working with a fiscal sponsor, be sure to look out for donation minimums or length of contracts that will potentially keep you locked in with a fiscal sponsor longer than you anticipated. With all of the different fiscal sponsors out there, it can be difficult to keep things in order. Thankfully, we have an article comparing a number of fiscal sponsors across the country and what they can offer your organization so you can make an informed decision on who might be the best fit.

You need to have a formal legal entity and EIN.

Before entering into a fiscal sponsorship agreement, most sponsors will require that your project has a legal structure (LLC, nonprofit corporation, or other registered entity) and an EIN. This ensures that the fiscal sponsor is entering into an agreement with a formal, established organization and not just an individual. For some fiscal sponsors, it isn’t a requirement to have a formed entity type – making the barrier for entry even lower to receive charitable donations. In this article we have walked through the different types of fiscal sponsors that may be a great fit for your organization. 

You’ll need to provide clear documentation.

Since the fiscal sponsor is responsible for ensuring that all charitable funds are used appropriately, they will need the following information. This will help by protecting both your organization and the fiscal sponsor from compliance issues. 

• Clear explanations for program activities. 
• Documentation for all expenses and payment requests.
• Proof of expenses supporting your charitable mission.

Communication is key. 

Submitting information on time and keeping your fiscal sponsor updated about your activities makes the relationship run smoothly. The more communicative you are, the easier it is for your fiscal sponsor to support your project effectively. 

Staying aligned with your mission. 

Your fiscal sponsor will expect you to operate within the charitable purpose you outlined in your agreement. If your programs evolve or shift, your fiscal sponsor will need to be kept in the loop. Having the proper setup for your organization and staying in regular communication with your fiscal sponsor helps to build a strong, healthy relationship – keeping your project in compliance every step of the way.

What does my fiscal sponsor keep track of for my organization?

A fiscal sponsor handles a lot of behind-the-scenes administrative work that helps your project stay organized, compliant, and ready for future funding opportunities. Here is what they will typically track for you:

All donations your project receives.

Your fiscal sponsor records every donation that comes in – this includes donor names, contact information, and donation amounts. This information can be incredibly valuable when you are planning year-end giving campaigns and fundraising events. Past donors are more likely to contribute to your organization if you keep them involved in the growth of your organization and updated on the great work you’re doing. 

Your transaction history. 

Fiscal sponsors track every dollar that comes in and every dollar that comes out of your project’s account. This includes approved expenses like payments to vendors, reimbursements, and grants. Having a clean, well documented financial history makes things much easier when applying for grants or reporting the impact your organization has had in your community. Many grant opportunities require that an organization has three years of financial records to ensure they are a stable organization that can be entrusted with grant funding. If your organization or project is to become your own 501c3 organization – these records can prove to be beneficial. Having this information can also help you with grant budgets– creating new ones and tracking expenses for existing grants.

Donation acknowledgements 

Fiscal sponsors are responsible for sending out official charitable donation receipts. They keep a record of all acknowledgements sent to donors for auditing and compliance purposes. While the IRS only requires that donation acknowledgements are provided for donations over $250, a fiscal sponsor will send out acknowledgements for any donation amount. 

A fiscal sponsor is your financial backbone. Keeping track of the data, documentation, and compliance pieces that many funders or donors expect to see. This gives your project a strong foundation to utilize as you continue to grow. 

Does my fiscal sponsor take care of my tax documents at the end of the year? Filing 990’s, sending out W9’s?

This depends on the type of fiscal sponsorship that you have. For Model C fiscal sponsorship, the type that FSA offers, the answer is no. Under a Model C structure, your fiscal sponsor does not file your organization’s tax returns for you. This means that you may need to work with a nonprofit bookkeeper or accountant to potentially prepare and submit:

• 990’s
• State filings 
• Annual reports
• Any other tax documents that may be required for your entity.

What about W-9’s?

W-9’s are handled differently depending on your fiscal sponsor’s policies. FSA does not provide W9 forms on behalf of fiscally sponsored organizations. FSA does allow for sponsees to track and store vendor W9 information inside of the platform that is used to facilitate fiscal sponsorship.

Other Common FAQs about Fiscal Sponsorship

If we created something using charitable donations, does that intellectual property belong to us or does that belong to our fiscal sponsor?

If you create intellectual property using charitable donations received through your fiscal sponsor, that intellectual property typically belongs to the fiscal sponsor, not you or your project. Under most fiscal sponsorship structures, the fiscal sponsor is the legal 501c3 entity receiving donations. That means that the charitable funds legally belong to the fiscal sponsor and are granted to your charitable organization or project. Anything that is created using those funds becomes part of the fiscal sponsors charitable assets. For example, if your organization uses charitable donations to create an educational app, the fiscal sponsor owns the software and application once it has been completed. 

Most fiscal sponsors will allow projects to continue to use the intellectual property freely as part of their mission. Ownership doesn’t prevent the ongoing use – it just means that the property is held by the sponsor to keep everything compliant with nonprofit rules and regulations. If you plan to leave your fiscal sponsor or want to negotiate ownership or licensing rights, it is best to do this early on and outline those terms in writing for the benefit of both the sponsor and sponsee. 

For a fiscal sponsor like Fiscal Sponsorship Allies, if your organization is a 501c3 when you leave fiscal sponsorship, the rights to the intellectual property are granted to your organization. If the organization isn’t a 501c3, the rights to the intellectual property can be paid for by your organization or kept by the fiscal sponsor.

Conclusion

Fiscal sponsorship can be a confusing space for someone who is unfamiliar with how the relationship between you and your sponsor works. There are many different types of sponsorship and many different organizations that all operate a bit differently. If you have more questions about fiscal sponsorship, reach out to Fiscal Sponsorship Allies or apply for fiscal sponsorship today!