The Pittsburgh Foundation can only pay grants to registered 501(c)(3) nonprofit organizations (including churches) or to a public entity such as a town, public school or state agency. All others will need to use a fiscal sponsor.
- What is fiscal sponsorship?
- Fiscal sponsorship describes an arrangement where a tax-exempt organization, usually a charity, accepts contributions for the purposes of a project that is spearheaded by someone outside the charity but that furthers the sponsor’s own charitable purposes.
- The National Council of Nonprofits defines a fiscal sponsor as "a nonprofit organization that provides fiduciary oversight, financial management, and other administrative services to help build the capacity of charitable projects."
- The sponsor cannot simply act as a passive conduit (i.e. pass-through entity), funneling donations from outside contributors to the project. Fiscal sponsorship works for tax purposes because the sponsoring charity is in the driver’s seat, responsible for and legally in control of the funds raised for the tax-exempt purposes pursued by the project. The sponsor maintains records that substantiate the sue of funds for appropriate charitable purposes.
- Fiscal sponsorship allows an organization without tax-exempt status under Internal Revenue Code Section 501(c)(3) to seek grants and solicit tax-deductible donations under the sponsor's exempt status.
- Grants and charitable donations are made to the fiscal sponsor. The fiscal sponsor controls the project and/or the selection of the secondary organization, project participants, or collaboration.
- Learn more about fiscal sponsorship.
Done well, a fiscal sponsorship acts as a proving ground for a new idea or a new nonprofit, while utilizing the administrative resources of the sponsor. Newly formed nonprofit entities may choose to apply through fiscal sponsors while awaiting their 501(c)(3) designation from the IRS.
- Risks of fiscal sponsorship
If the relationship is not perfectly clear for all parties, a fiscal sponsor can easily become a fiscal agent. A fiscal agent is an entity that acts as a conduit to pass through grant funds to an organization. A fiscal agent (unlike a fiscal sponsor) does not accept legal or financial responsibility for the project or organization and is not considered the Foundation's grantee. This type of grant will result in the IRS viewing the grant as a taxable expenditure, which may have adverse legal consequences.
- Applying to the Foundation through fiscal sponsorship
Generally, The Pittsburgh Foundation will only make grants through fiscal sponsorship under the following conditions:
- The fiscal sponsor provides this service as a core part of its service delivery model. There are a small, but growing, number of nonprofit organizations that provide fiscal sponsorship as one of its core services to the community. These organizations promote their role as a fiscal sponsorship as a part of their communications (website, strategic plan, etc.). They generally have a standard process through which organizations apply to become a fiscally sponsored project.
- The project seeking funding is strongly aligned with and furthers the charitable mission of the fiscal sponsor organization. A nonprofit organization may agree to act as the fiscal sponsor for a project because the project’s purpose is closely aligned with its established goals and priorities. In this case, the fiscal sponsor has experience with the project’s purpose.
- Information for LLCs and other for-profit entities applying through fiscal sponsorship
The Pittsburgh Foundation will consider applications from LLCs or other for-profit entities applying through fiscal sponsors. To be eligible, the applicant must:
- Clearly demonstrate that the grant will be used exclusively for a charitable purpose as defined by the Internal Revenue Service.
- Apply for programmatic support of a qualifying project that satisfied a charitable purpose only. Requests for operating support will not be considered.
- Have a fiscal sponsor that provides fiscal sponsorship as a core part of its operating model.
- Requirements for all projects applying through fiscal sponsorship
- Groups, projects or initiatives must have an established relationship with a fiscal sponsor.
- Applications must clearly demonstrate that the grant is for a charitable purpose as defined by the Internal Revenue Service.
- Applications to the Foundation must include a copy of a fully executed fiscal sponsorship agreement that provides the fiscal sponsor maintains control of the donated funds. An application submitted without this documentation will not be considered. Access a sample fiscal sponsorship agreement.
- The signed fiscal sponsorship agreement must be up-to-date and should not be more than two years old.
- The agreement must specify the exact administrative fee that the fiscal sponsor will receive if the grant is approved.
- A program budget must be submitted for each grant application and the budget must specify any administrative fees assessed by the fiscal sponsor organization.
- The grant’s charitable purpose must be aligned with the mission and experience of the fiscal sponsor organization.
- Additionally, to be considered for funding, the fiscal sponsor organization must:
- Have a 501(c)(3) tax-exempt charitable status. Foundation staff use GuideStar to verify that applicants have an active 501(c)(3) status.
- Have an operating history of at least 5 years.
- Be current with all state and federal reporting requirements, such as filing of 990 forms.
- Demonstrate that the size of the grant request is comparable in size to what the organization would normally manage.
- Have capacity to exercise expenditure responsibility, ensuring that the grant is used only for the purpose for which it was made. This includes obtaining full and complete reports from the sponsored project on how the funds were spent and maintaining records of receipts and expenditures and making records available to the Foundation upon request.
- Thus, the Foundation requires evidence of strong financial management practices, including a current, board approved operating budget, annual audited financial statements and Form 990. The fiscal sponsor organization will be required to repay any portion of the amount granted which is not used for the purposes of the grant.
- Have the ability to submit full and complete annual reports to The Pittsburgh Foundation on the manner in which the funds are spent and the progress made in accomplishing the purposes of the grant. Prior grant history with the Foundation in which grant reporting requirements have been successfully met is preferred.
- Have proof of appropriate liability insurance.
If you have any questions about fiscal sponsorship, please contact us at 412-394-2611.