Frequently Asked Questions about Fiscal Sponsorship

Fiscal sponsorship is a contractual arrangement in which a 501(c)(3) nonprofit organization offers its legal and tax-exempt status to another group for a project or an activity related to the mission of the nonprofit organization.

This alternative to starting your own nonprofit, or by using a fiscal sponsor while waiting for your organization’s determination to come back from the IRS, allows you to seek grants and solicit tax-deductible donations under the sponsor’s exempt status. Using a fiscal sponsor, a non-exempt individual, project, event, or organization can take advantage of a lot of the benefits of a tax-exempt nonprofit organization.

Legally, any existing tax-exempt nonprofit organization can act as a fiscal sponsor but, because of the legal complexity and administration required, not all nonprofits will do so. If you’re looking for a fiscal sponsor, it’s best to partner with an organization with which you have a good relationship, and/or one that has an existing fiscal sponsorship program. Organizations also offer different types of sponsorship agreements or relationships, so make sure to do your research on what will be the best fit for your project.

The Arts & Business Council provides fiscal sponsorship under the Pre-Approved Grant, or Model C, arrangement. With this relationship, the sponsored project is a separate legal entity whose purpose is aligned with the Arts & Business Council’s mission and purposes, and we strongly suggest that it is incorporated in the state of Tennessee as a nonprofit organization.

In the Model C relationship, a fiscal sponsor:

• Qualifies the project for some grants and funding that would otherwise be inaccessible;
• Accepts and safeguards charitable donations in a restricted fund on behalf of a project;
  Takes on legal liability for those funds;
  Creates and maintains some accounting records for the project;
• Commits to timely reporting on the restricted project funds to your project leaders;
• Communicates as necessary and appropriate with your project’s donor(s), institutional grantmakers, or funding agency(ies) in ways that supplement your project leader’s communications; and
• Brings experience to the project and may provide additional aids such as administrative services and/or strategic planning assistance.

Fiscal sponsorship is a good solution for organizations (or certain individual projects or events) that only want to do a few small projects over a specified period of time, those who don’t have the time or staff for a lot of organizational administration, or those who need to be able to receive tax-deductible donations while they wait for separate 501(c)(3) nonprofit status approval from the IRS. Of note, in a Model C relationship, the sponsor only funds projects to the extent that the project is able to raise its own funds.

No. Receiving fiscal sponsorship from the Arts & Business Council does not make your project a nonprofit or charity. Fiscal sponsorship is intended for organizations that are waiting for their 501(c)3 determination, are a one-time project, or are organized in a way where it doesn’t make sense to become a separate nonprofit. Under fiscal sponsorship, the project will still be liable for its own tax reporting. Consult with a tax professional to determine what type of tax filings may be appropriate.

No. Your project is a separate legal entity and is not an agent or legal representative of the Arts & Business Council. Your project is responsible for its own tax filings and owns its own work products and equipment. Project staff or volunteers do not work for the Arts & Business Council. The project is a part of the Arts & Business Council only in the sense that the Arts & Business Council provides enabling support for you to receive funds that would otherwise be inaccessible, as well as some training, educational resources, and administrative guidance.

Though the donated funds are the legal responsibility of the Arts & Business Council, the project remains a separate legal entity and retains ownership of all of its work products and outcomes. Any tangible or intangible property, including copyrights, obtained or created by the project is the sole property of the project.

Your project is an independent entity, acting under fiscal sponsorship of the Arts & Business Council. After you notify us of the potential funding source(s) you intend to approach, and at the appropriate time in the application process, the Arts & Business Council will prepare a letter to the funder confirming the sponsorship and provide any other information they require. Generally, this type of information is sent along with a full proposal, not with initial inquiries.

Don’t wait until the last minute to tell us you need the letter or other materials for the funder you are approaching with a full proposal. We request at least two weeks of advance notice. However, when a funder asks for your organization’s budget, financial statement, Board of Directors, or other materials – what they really want is your information, not the Arts & Business Council’s.

The Arts & Business Council’s program is designed for projects that advance our mission to create a thriving, sustainable creative culture in greater Nashville. Our sponsored projects must have a nonprofit purpose, and the project’s main activities must be based in Tennessee.

A “nonprofit purpose” means that the organization or project’s mission comes before any individual’s advancement or profit motive. That mission must also be in service of some aspect of the public good.

The Arts & Business Council can sponsor sole proprietorships, nonprofit corporations, or single-member LLCs that are nonprofit in purpose and meet all other eligibility requirements. We cannot manage funds meant for for-profit purposes and will not manage funds on behalf of for-profit corporations (S and C corps) or S, C, or P classification LLCs.

In addition to fundraising for your project, there are a few other requirements for being a fiscally sponsored project, including but not limited to:

• Manage your project’s tax, HR, filing, and liability issues
• Properly recognize the Arts & Business Council as your fiscal sponsor on all fundraising and marketing materials, including your website and social media
• Provide the Arts & Business Council with all communication with funders (proposals, letters of inquiry, etc.) for approval
• Provide detailed financial information to support all requests for funds
• Provide the Arts & Business Council with monthly narrative reports about your project’s activity
• File any grant reports or other funding documentation and requirements in advance of the funder’s deadlines
• Inform the Arts & Business Council promptly of changes in project or contact information
• Respond to Arts & Business Council requests in a timely manner
• Act as a good steward of the Arts & Business Council and Greater Nashville’s creative community

This infographic from the National Council of Nonprofits visualizes the fiscal sponsorship relationship well.

Your project must document and send information about its activities to the Arts & Business Council as you would for any other funder because the Arts & Business Council has assumed liabilities to the IRS about the charitable nature of your project. The Arts & Business Council maintains records that document its oversight ensuring that your project is furthering a charitable mission and purpose. The only way that we can maintain those records is if you keep us apprised of your activities.

We sure can! Our Volunteer Lawyers & Professionals for the Arts program has helped a lot of new nonprofit organizations through the start-up process. Fiscal sponsorship is a good testing ground, and we have the legal and consulting resources that can help you figure out your next steps.

Most likely, yes. The Arts & Business Council sponsors creative projects and organizations of all sizes and stages. We’d love to chat with you about the long-term plans for your project and see if it is a fit for fiscal sponsorship. Email info@abcnashville.org in order to set up a time to talk with us about your project.

For fiscal sponsorship purposes? Absolutely. However, you likely will need to compromise in order to meet IRS tax requirements. Tax requirements depend on your project’s business structure and we strongly recommend consulting a tax professional for more information.

All of the Arts & Business Council’s fiscally sponsored projects are self-managed, Model C organizations, which means that they are responsible for filing their own tax return.

If your project is a sole proprietorship, single-member LLC, or unincorporated association, you will need to account for your project on your personal tax return(s). This means you will need to:

• Fill out a 1099-MISC form for any individual(s) you pay a total of $600 or more during the calendar year.
• Claim all income from the Arts & Business Council on your tax return and deduct project expenses by filling out a Schedule C.

If you are a corporation in Tennessee that has yet to file their application for 501(c)(3) or is waiting on the IRS is as a sole proprietor, then you may need to complete a 990, depending on your budget size. We strongly recommend consulting a tax professional for more information.

Yes. Sponsoring organizations nearly always charge fees to cover administration costs of the program. That being said, the Arts & Business Council offers fiscal sponsorship because it is an important part of our nonprofit mission, and the fees do not always cover the full administrative cost of the program.

Our costs include an application fee ($50 for Arts & Business Council members, $100 for non-members) and a $25 onboarding fee should you be accepted into the program, and a monthly maintenance fee of 7.5% of any funds that are deposited with us. We also charge rush fees if we need to accommodate requests for materials on short notice. Please get in touch with us to discuss the fee structure in more detail.

The primary benefit of fiscal sponsorship is the ability to receive tax-deductible donations for nonprofit work, but the Arts & Business Council also offers several services and discounts to our sponsored projects.

Program benefits include:

• Access to our Volunteer Lawyers & Professionals for the Arts program for pro bono bylaw and articles of incorporation review, as well as other pro bono or low-cost legal services for arts-related disputes
• Your project’s money is held in a separate account and available to you as needed (given adequate notice and documentation)
• Weekly deposits and check processing
• Automated monthly account statements via email
• Letters of agreement for grant applications available as needed
• Donors who give $250.00 or more to your project (individual and corporation/foundation) are sent acknowledgements from the Arts & Business Council to document tax deductions
• Access to the Arts & Business Council’s other program and services, including Arts Board Matching, as well as discounts on certain Education seminars.

Potential projects can determine their eligibility with the short checklist below. Eligible candidates can continue to the online application form. If you still have specific questions, you can email info@abcnashville.org.

Sort of. Applications can be submitted at any time and are preliminarily reviewed by the Arts & Business Council staff every month. This review allows for follow-up questions or revisions if further information about your project is needed. Then, applications are presented to a selection committee for final approval. The selection committee makes fiscal sponsorship decisions on a set schedule, so the overall process from the time we receive your application until a decision is made may be up to 3 months.

Currently, the Arts & Business Council’s Fiscal Sponsorship program is limited to a total of 25 projects. You can view our current roster of projects in order to gauge the capacity and competitiveness of a particular application cycle.

Way to go! We’re excited to have you on board. We’ll send you a contract to review, sign, and return to us along with proof of insurance for your project.

Once we have a signed contract and proof of insurance on file, we’ll set up your Arts & Business Council bank account and send you links to online forms and tools to help manage your project with us. Then, you can start fundraising!

The Arts & Business Council’s Fiscal Sponsorship’s contract terms are valid for one year, and can be automatically renewed indefinitely as long as the project is active and in compliance. Contracts can also be terminated by either party with 60 days notice (If, for example, a sponsored project obtains its own federal tax-exempt status, the project would no longer need a fiscal sponsor and could “hatch” from the incubation of fiscal sponsorship.) Once a fiscal sponsorship relationship with the Arts & Business Council ends, we will keep your records on file for five years.

Grants and donations MUST be made out to or processed by a fiscal sponsor organization to be tax-deductible. Once your project is accepted into the Fiscal Sponsorship program, donors can send checks, with your project name in the memo line, to the Arts & Business Council for deposit. We will deposit your funds and hold them for you in a separate checking account. To get those funds, you’ll need to fill out a secure online funds request form, and we will send you a check. We process deposits and cut checks once a week.

Yes! Checks from individual donors, as well as grants or charitable sponsorships from organizations, must be made out to the Arts & Business Council in order for them to be tax-deductible. Make sure they write the name of your project in the memo line so we don’t mistake the donation as ours instead. We cannot accept checks that are made out to your organization, and we cannot accept donations from someone else through you (i.e., if you were to deposit a donation check into your own account and then write the Arts & Business Council a check for the same amount).

Why, yes they can. On the Arts & Business Council’s “Fiscal Sponsorship” page, there are individual online donation forms for each project in the program. Our payment processor takes a small percentage for credit card processing, so we recommend that checks are sent to our office in order to receive the full value of the donation.

Not necessarily. As long as your subsequent project fits with our mission and is consistent with our program and tax-exempt guidelines, then we can probably transition your account into your new organization/project. We’ll have a conversation about your project and see if it is a continuing fit for fiscal sponsorship. Email info@abcnashville.org in order to set up a time to talk with us about your project.

Bummer – it happens to the best of us. You might not win them all, but don’t give up! Not receiving funding doesn’t affect your contract with us, and we’re able to sponsor your project as long as you’re interested in pursuing tax-deductible funding.

We also often offer fundraising and grant writing workshops through our Education program if you’re interested in brushing up on your skills.

• Be aware of your deadlines – it makes things easier for everyone (and avoids rush fees).
• Many of our sponsored projects are interested in applying for the same grants, so our plate gets filled up fast for the popular ones. Since all projects are applying for tax-deductible donations using the same EIN, it will be first-come, first-served.
• Make sure your donors make checks out to the Arts & Business Council and not to your organization, and write your project’s name in the memo field.
• Keep track of your records. It’s always good to be prepared.
• Keep the Arts & Business Council aware of what’s going on. If you’re exploring new funding, making changes, or have new projects coming up, let us know. We’re here to help you.