How I learnt about fiscal sponsorship

Last year, I was introduced to the term Fiscal Sponsorship by a client I took on. Their business oversees the business and financial management for entertainers and entertainment executives. They found that many of their clients wanted to support various causes, without going through the process of setting up their own 501(c)(3) organisation. They decided that they would create a fiscal sponsorship organisation to solve this, but what is it?

What is Fiscal Sponsorship?

Fiscal sponsorship is where a non-profit organisation offers their legal and tax-exempt status to other (often smaller) non-profit organisations. For a fee, fiscal sponsors can provide financial management (accepting and managing donations/fundraising), and administrative oversight (providing the necessary compliance in accordance with 501(c)(3)) to the organisations they work with.

Who would use a fiscal sponsor?

More often than not, fiscal sponsorship is used by smaller or newer non-profit organisations. Perhaps, they are still wanting to test out an idea before committing to the 501(c)(3) process. Maybe they are in the process of getting their tax-exempt status but have a project they would like to start whilst they wait. Of course, it’s also very helpful for those who have fewer resources i.e. those who don’t have large management teams or a board of directors, or operational processes in place.

Where are fiscal sponsors most common?

I’ve used the term 501(c)(3) which is the US code for a non-profit organisation that has tax-exempt status from the IRS (internal revenue service). As such, fiscal sponsorship is something that is more common in the US than it is in the UK. There are, however, organisations in the UK that offer this service, but it’s not as common to my knowledge.

The UK landscape

The use case of fiscal sponsorship in the UK is extremely clear. The Local Trust did a great study on below-the-radar organisations. They defined these as:

“Grassroots organisations (i.e. local organisations embedded in the community and volunteer-led) that don’t have a formal registration as a charity, company or other legal form, but do provide a charitable or public benefit.”

below the radar research 2020

Their research found that these organisations never received more than £10k in funding, whereas registered grassroots organisations and registered charities were 44% and 38% respectively more likely to receive funding over £10k.

They also found that just 4% of below-the-radar orgs were given long term funding (classed as 15 months or more), whereas registered charities were 38.8% more likely to receive long term funding. Full report can be found in the further reading section.

What could a fiscal sponsorship look like in the UK?

I’ve been thinking about this a lot recently. In my last blog, I talked a lot about how restrictive it is for small non-profit organisations.

For the non-profit organisations that perhaps aren’t registered as a charity; have less than 3 directors; and don’t have a board; funding opportunities are low.

The majority of grants, foundations and trusts all require the above, which means that impact driven organisations miss out on a lot of funding opportunities, and therefore, so do their beneficiaries.

The funding bodies want to see financial rigour and accountability applied within the organisations they fund which is a requirement I 100% support. So how do we create a system that allows for this, whilst still supporting grassroots organisations?

Silo Boards

Is there a way to create silo boards for project based funding applications across the UK? In the same way that the trustees of most foundations and trusts meet regularly to make decisions on application, can we do this for non-profit organisations?

For example, say organisation A is applying for funding to deliver a programme over the period of 18 months. Could a board be appointed for the duration of the project to ensure that it’s a) delivered in accordance with what they submitted and what the funder expects, b) fully compliant with the relevant regs across the board during that time and c) that the project reporting at the end is adequate?

With this solution, we’ve:

1. Been able to access funding to support beneficiaries;
2. Trustees have flexibility when it comes to their trustee experience;
3. We’ve got the financial and administrative rigour funders expect to see from those they fund; and
4. With the aforementioned accountability, organisations are also being fully compliant in line with the charity commission.

It doesn’t solve everything

There are many holes in this idea (and the landscape in general). I don’t claim it to be the next big thing, but I do think that it welcomes questions about how to best support small organisations in different ways.

What are your thoughts on fiscal sponsorship? Is it a service you would use? Have you had a fiscal sponsor in the past? Do you have any thoughts on the alternative I’ve suggested?

Please email me by clicking here and let me know your thoughts, I’d love to continue this discussion with you.

Further Reading

• What is fiscal sponsorship? How do I find a fiscal sponsor?
• Global Dialogue – an organisation offering fiscal sponsorship in the UK
• Prospero World – an organisation offering fiscal sponsorship in the UK
• The Social Change Nest – an organisation offering fiscal sponsorship in the UK
• Below The Radar: Exploring grants data for grassroots organisations
• Going global: how about fiscal sponsorship outside the United States?