How does Model C Fiscal Sponsorship Work? (With Infographics!)
Wondering how Model C fiscal sponsorship works? We’ll detail how we help charitable programs accept tax deductible donations without their own 501c3 status below.
What is Fiscal Sponsorship?
Fiscal Sponsorship is a legal arrangement between an established 501(c)(3) nonprofit organization (the sponsor) and a new charitable program or project (the sponsee) that allows the established nonprofit to incubate the new program/project. There are multiple models of fiscal sponsorship, but Fiscal Sponsorship Allies offers Model C fiscal sponsorship.
What is Model C Fiscal Sponsorship?
Model C is often called a “pre-approved grantor-grantee relationship.” Model C can be used for one time grants or gifts, or can be used on an ongoing basis. Essentially, this means the sponsor can accept tax deductible grants and donations on behalf of the sponsee, then disburse the funding to the sponsee as a sort of “grant” to accomplish the charitable programming. Model C has a few requirements:
- The Sponsor (that’s us) and the Sponsee (the charitable program) must be separate legal entities. The charitable program could be run by a nonprofit, an LLC, an individual or other type of entity. Keep in mind, the charitable program is not considered an employee, contractor or vendor of the fiscal sponsor. The legal relationship is of a sponsor and sponsee.
- The charitable program or project must be vetted by the sponsor prior to receiving funding. We use our fiscal sponsorship application as part of the vetting process.
- Donations and grants must come through the fiscal sponsor. The fiscal sponsor directly accepts the funds, then disburses the funds to the charitable program. The fiscal sponsor also must collect information about the use of the funds to ensure they’re being used in a charitable fashion.
- Grant requests must come through the fiscal sponsor for review.
How does your fiscal sponsorship program work? How do I start accepting donations?
Once you’ve applied to our program, we review your application to be sure it fits with the criteria we use for eligibility. We accept most charitable programs, as defined by the IRS. If your program is approved, we will send you our Fiscal Sponsorship Agreement to e-sign and you can pay the setup fee for which donation page you’d like.
After we have the signed agreement and the setup fee, your program is officially fiscally sponsored by Fiscal Sponsorship Allies! You’ll have an assigned representative who will serve as your regular point-of-contact. We’ll create a custom donation page for you with information you submit, which includes your logo, information about your charitable program, and/or a photo. Your donation page will allow you to accept donations online via e-check (ACH or bank transfer) or credit card. Once your donation page is set up, you can start fundraising right away! Premium fiscal sponsees also can have a text-to-donate code and the option to have an embeddable donation widget directly on your website.
We can also accept ACH, wire, paper check, donor-advised fund, company match, and stock donations. For all of these methods, we have a pledge form that a donor can complete so that we know the donation is restricted for your program. Some of these donation methods, such as stock donations and company matches, can require a little more setup, so you can check in with your fiscal sponsorship representative about accepting those.
Fiscal Sponsorship Allies disburses donations to sponsees on a monthly basis between the 10th and the 20th of each month. Before we’re able to disburse funds, we’ll need information about the bank account you’d like donations transferred to, so be sure to set up a bank account for the charitable program as soon as you’re able. You’ll get an ACH transfer each month as a lump sum of the donations minus fees from the previous month. For example, if donors gave $10,000 for your program in April, we would disburse a lump sum to you between May 10th and 20th.
Each quarter, you’ll submit a quarterly report to us detailing how the funds were spent. This is your opportunity to tell us all about the incredible work you’re accomplishing through your charitable program. We provide a template for the report which you can see here. These quarterly reports are crucial to maintaining the program, as fiscal sponsors have a responsibility to ensure funds are being used for charitable purposes. The fiscal sponsor’s own tax exempt status is at-risk if any sponsee does not provide thorough and accurate reports.
Model C fiscal sponsorship isn’t for everyone though. Our model isn’t geared towards those who want extensive back office support like extra accounting services. But Model C fiscal sponsorship can be a great way to launch a new charitable program or accept donations in all 50 states without having to manage charitable solicitation registration requirements for each state.