Frequently Asked Questions about Fiscal Sponsorship

An 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, Fiscal Sponsorship allows projects to seek grants and solicit tax-deductible donations under the fiscal sponsor’s tax-exempt status. Using a fiscal sponsor, a non-exempt individual, project, or organization can receive many of the benefits of a tax-exempt nonprofit organization.

Legally, any existing tax-exempt nonprofit organization may act as a fiscal sponsor, but due to 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 already have a strong relationship and/or one that has an existing fiscal sponsorship program. Organizations also offer different types of sponsorship agreements and/or relationships, so be sure to do your research on what will be the best fit for your project.

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 that 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.

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.

• 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 quarterly narrative reports about your project activities
• 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.

All of the Arts & Business Council’s fiscally sponsored projects are self-managed under the Model C agreement 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 as a sole proprietor, then you may need to complete a 990, depending on your budget size. (Always consult a tax professional for tax advice regarding your fiscally sponsored project.)

Program fees include an application fee ($50 for Arts & Business Council members, $100 for non-members), 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 (There is a minimum monthly fee of $25 beginning after a 3 month grace period..). 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.

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
• Monthly account statements sent via email
• Letters of support for grant applications available, as needed
• Donors who give $250.00 or more to your project (individual and corporation/foundation) are sent acknowledgement letters from the Arts & Business Council for tax documentation purposes
• Access to the Arts & Business Council’s other programs and services, including Arts Board Matching, as well as discounts on certain Education seminars.

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

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 may be automatically renewed indefinitely as long as the project is active and in compliance. Contracts may 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.) After the fiscal sponsorship relationship with the Arts & Business Council ends, we will keep your records on file for at least five years.

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 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, we will assist projects on a first-come, first-served basis.
• Make sure your donors make checks out to the Arts & Business Council and not to your organization. They should include your project’s name in the memo line instead.
• 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.