Summary
- A fiscal sponsorship is an arrangement in which a tax-exempt nonprofit organization accepts tax deductible donations on behalf of a charitable activity or organization that does not have its own tax-exempt status.
- Fiscal sponsorships are used to address urgent charitable needs, support small scale charitable projects, and help new nonprofits get off the ground.
- A fiscal sponsorship allows the sponsored organization to focus almost entirely on its charitable mission by freeing it from administrative and regulatory compliance tasks. The sponsor provides those services.
- Fiscal sponsorship is currently regarded simply as a financial procedure. It does not exist in any law or regulation, but it is completely legal.
Introduction
It is virtually impossible to run a charitable organization without a tax-exempt designation from the IRS. To be tax-exempt means that anyone who donates to your organization can deduct it from their taxes. Donors, private foundations, and many government grantmakers won’t even consider giving to a charitable organization that does not have a tax-exempt status from the IRS. It’s more than just the tax benefits. Having a tax-exempt designation reassures supporters that the organization is an actual charity and not a scam.
Acquiring a tax-exempt designation is an enormous barrier-to-entry within the nonprofit industry, which can effectively shut out many aspiring charities. The process can easily stretch on for over a year. The organization must first legally organize as a trust, corporation, or association in its state.1Internal Revenue Service, “Application Process,” accessed Jun. 22, 2026. https://www.irs.gov/charities-non-profits/application-process After that is complete, it can apply to the IRS for an employer identification number (EIN).2Internal Revenue Service, “A Does the organization have an EIN?” accessed Jun. 22, 2026. https://www.irs.gov/charities-non-profits/does-the-organization-have-an-ein Once that’s granted by the IRS, the organization can start the tax-exempt application process. A key requirement is to provide its financial statements to the IRS, even though it hasn’t been able to raise any money yet.3Internal Revenue Service, “Do you have the required financial information?” accessed Jun. 22, 2026. https://www.irs.gov/charities-non-profits/do-you-have-the-required-financial-information If that’s the case, the IRS allows organizations to submit its receipts and expenditures for “future years.” Needless to say, this process is not for the faint of heart or anyone in a hurry.
The IRS process also operates under the assumption that an organization can navigate this red tape before it has any funding. This creates many challenges within the charitable community. For example, how can urgent charitable needs be addressed when it takes so long to become a legally recognized charity? How can charitable organizations launch before they can raise startup capital? How can organizations comply with the IRS administration requirements when it will never generate enough revenue to support administrative services? The nonprofit community has long addressed these challenges by creating an arrangement called “fiscal sponsorships.”
Fiscal Sponsorships
A “fiscal sponsorship” is an arrangement where a tax-exempt organization acts as a financial conduit for a charitable organization or project that does not have its own tax-exempt designation. Sometimes described as “piggybacking,” fiscal sponsorships allow individuals and groups to perform charitable activities without first having to organize a new legal entity from scratch.4William, Jeff and Alexandra Akaakar, “The Fiscal Sponsorship Model,” Jan. 17, 2024. https://johnsoncenter.org/blog/the-fiscal-sponsorship-model-a-growing-trend-in-the-nonprofit-sector/
Basically, fiscal sponsorships provide charitable organizations with access to tax-deductible funding, reduce administrative costs, and establish credibility without having to create a formal corporation. The sponsoring organization sometimes charges a fee for those services. It is also responsible for providing oversight of the funds and the sponsored activity. The sponsor must ensure all laws and regulations are being followed, or it risks losing its own nonprofit status.5Internal Revenue Service. (1975, September 8). Revenue Ruling 75-384. U.S. Department of the Treasury. https://www.irs.gov/pub/irs-tege/rr75-384.pdf
There are three basic components to a fiscal sponsorship. First, there is a desirable charitable project, such as a need for a food pantry identified by the members of a church. Second, there is a donor willing to support that project. Third, there is a tax-exempt organization, such as the church, that accepts the donor’s gift on behalf of the project and provides various types of support to enable the project’s success.
This provides the donor with a tax benefit and assures them it is a legitimate charitable cause, because the sponsoring organization is vouching for it. This mechanism is invaluable during the start-up phase for a new charity, but there are other situations where it is extremely useful too.
There are six recognized fiscal sponsorship models based on industry practices.6Colvin, Gregory and Stephanie Petit, “Fiscal Sponsorship: 6 Ways,” 2019. These include: direct project (Model A), independent contractor project (Model B), preapproved grant relationship (Model C), group exemption (Model D), single-member limited liability company (Model L), and technical assistance (Model F).
Models A and C are the most common.7Northeastern University. Under Model A, the new activity is fully integrated into the sponsor’s existing organization. This could describe that church-affiliated food pantry or a PTA-chartered Cub Scout pack. In either case, donors provide gifts specifically for the food pantry or the Cub Scouts through the church or PTA. There’s a good chance the food pantry and Cub Scout pack wouldn’t even have their own bank accounts.
Under Model C, the sponsoring organization simply handles the money and provides basic oversight and administrative support. This enables the sponsoring organization to incubate charitable startup organizations or support short-term projects like America’s 250th anniversary celebration. Again, donors can support those causes by providing the gift to the sponsoring organization with the understanding it is meant to support the sponsored activity.
Model B is also worth highlighting. It involves a nonprofit contracting out a project to a private for-profit organization. This could involve an emergency relief project, where a nonprofit group contracts with a logistics company to distribute relief supplies. This enables donors to provide tax deductible gifts for the relief project, even though the project is being run by a for-profit company.
These examples display how versatile and effective fiscal sponsorships can be in addressing various needs in the charitable community.
A Free Market Solution
Fiscal sponsorships showcase how the charitable sector can effectively leverage the free market to develop adaptive and responsive solutions without the need for government intervention. Without the strict constraints and restrictions that come with direct government regulation, nonprofits have been free to apply fiscal sponsorships into a multitude of situations.
The six recognized models of fiscal sponsorship demonstrate that adaptability. Free market dynamics enabled their creation and development without any government involvement. This self-regulation is possible because existing nonprofit laws require responsible behavior and the concept of donor intent encourages good stewardship.
Even though there are no specific laws or regulations regarding fiscal sponsorships, sponsoring organizations must comply with existing nonprofit laws or risk losing their tax-exempt status.8Johnson Center, “The Fiscal Sponsorship Model,” Jan. 17, 2024. https://johnsoncenter.org/blog/the-fiscal-sponsorship-model-a-growing-trend-in-the-nonprofit-sector/[/mfm] They are legally responsible for ensuring funds are spent on charitable purposes. And just like any other corporate entity, the sponsor and, by extension, the sponsored project it oversees cannot engage in any criminal activities.8Northeastern University, “Fiscal Sponsorships,” 2025. https://law.northeastern.edu/wp-content/uploads/2025/11/Nonprofit-QA-Resource-Fiscal-Sponsorships.pdf
Sponsors are not required to disclose fiscal sponsorships to the government, but many choose to maintain transparency, nonetheless. Many disclose that information directly to the public, either on their own websites or through online directories.9https://fiscalsponsordirectory.org/
Finally, donor intent is a major force that ultimately drives the rationale for establishing fiscal sponsorships in the first place. Remember, the underlying reason for fiscal sponsorships is there is a donor who wants to give to a specific charitable project. Sponsoring organizations recognize the importance of honoring that intent or risk harming their reputation and their ability to attract future contributions from that and other donors.
Furthermore, government regulation of fiscal sponsorships would not be a simple endeavor. Fiscal sponsorships are so varied and flexible, it’s not exactly clear what constitutes a “fiscal sponsorship.” The US Treasury acknowledges that fiscal sponsorship is “an umbrella term.”10US Dept. of Treasury, “Treasury Announces Form 990 Transparency,” Apr. 23, 2026. https://home.treasury.gov/news/press-releases/sb0470 Under Model A (direct projects) it’s up for debate what the difference is between a fiscal sponsorship and normal charitable activities.
Again, this ambiguity is a feature and not a bug. It ensures the basic framework of fiscal sponsorship is flexible and adaptable enough to provide solutions for the nation’s many diverse charitable needs. Any attempt by the government to put fiscal sponsorships into a box would either severely hamper that capability or simply impose restrictions on a small portion of what is currently considered to be a fiscal sponsorship.
Current Issues
Every year, 501(c)(3) nonprofit organizations are required to submit an extensive report to the IRS called Form 990. It contains detailed financial information about all aspects of an organization’s operations. The report includes board member information, staff salaries, fundraising expenses, major expenses, vendor contact information, grant recipients, and much more. The reports often run dozens of pages long.
Regardless, no matter how much information is included in the 990, there is an insatiable desire by some policymakers to know even more. This results in new disclosure requirements, which drive the ever-increasing regulatory burden on nonprofits, which has fueled the demand for the back-office efficiency of entering into fiscal sponsorship arrangements. Recently, there’s been a push to include information about fiscal sponsorships on the 990.
In a Feb. 12, 2026 House Ways and Means committee hearing, Congressman Lloyd Smucker said the IRS could begin requiring nonprofit organizations to disclose information about fiscal sponsorships in their form 990 filings, which adds to the already bloated regulatory burden on nonprofits. During the meeting, he quoted from a Wall Street Journal editorial which argued isolated examples of alleged misconduct justify broad federal restrictions on fiscal sponsorship that would fundamentally alter a longstanding charitable practice. In April, the US Treasury Department said that’s exactly what it plans to do.11US Dept. of Treasury, “Treasury Announces Form 990 Transparency,” Apr. 23, 2026. https://home.treasury.gov/news/press-releases/sb0470
Conclusion
Even critics recognize that fiscal sponsorship is an important tool for addressing urgent charitable needs in the community and incubating startup nonprofit organizations as they navigate IRS red tape. Although there are no disclosure requirements for fiscal sponsorships, many groups openly acknowledge those relationships.
Regardless, some policy makers want to codify the practice of fiscal sponsorship in order to identify, regulate, and monitor those relationships. Such measures are unnecessary and would only increase the already heavy regulatory burden on nonprofits, which prompted the development of fiscal sponsorships in the first place.