Mission alignment key to fiscal sponsorship arrangements, experts say

• Published date: 01 March 2019
• DOI: http://doi.org/10.1002/nba.30566
• Date: 01 March 2019

NONPROFIT BUSINESS ADVISOR MARCH 2019

6© 2019 Wiley Periodicals, Inc., A Wiley Company • All rights reserved

DOI: 10.1002/nba

Philanthropy

Mission alignment key to scal sponsorship

arrangements, experts say

As the requirements for obtaining—and maintain-

ing—501(c)(3) certication get more and more expen-

sive and complicated, some social good organizations

are looking to a different type of arrangement that

offers some of the same benets, without as much

red tape: scal sponsorships.

But, for existing 501(c)(3) nonprots that would

serve as the sponsor, the risks of doing so must be

balanced with the potential rewards, experts say.

According to George Constantine, a partner at

Washington, D.C.–based law rm Venable LLP, there

are plenty of examples where a nonprot might agree

to scally sponsor an organization that does not hold

a 501(c)(3) certication.

“Most often, a charity is approached by a group

with an idea for a project and wants to raise funds

for it, but they need to be tax-deductible,” he said.

Sometimes, the arrangement is intentionally short-

term—essentially, the goal is to allow the new group

to accept donations and move ahead with the project

while its 501(c)(3) application is in process, he said.

But other times, the time horizon is longer, but

usually not indenite.

Regardless, the new organization typically ap-

proaches a nonprot whose program areas and mis-

sion overlap with theirs—for example, a group that

has developed a unique program focused on expand-

ing access to youth sports would contact a sports or

youth-focused nonprot and pitch a sponsorship pro-

posal. A fundamental component of the relationship

is that the new group can “borrow” the 501(c)(3)’s

tax-exempt status and solicit and accept grants and

donations. Under a scal sponsorship arrangement,

donors would technically make their checks payable

to the sponsoring nonprot, even though the funds

are really earmarked for the new group or project,

and would therefore get the tax advantages offered

to any other donor to the nonprot.

The benet for the new group is obvious: funding

for its program or project, without worrying about

the various requirements for ling annual reports

with state and federal agencies or complying with

all the afliated rules and regulations that apply to

fundraisers and charitable organizations.

The benets for the sponsoring organization, Con-

stantine said, are not as cut and dried, and should

be carefully considered and understood before the

arrangement is agreed to.

“The 501(c)(3) should do a complete analysis to see

how the new program would align with its own pro-

grams and how it would advance its mission,” he said.

Under these arrangements, a certain percentage

of the funds coming in for the sponsored group or

program usually are earmarked for the sponsoring

nonprot, he said. But that shouldn’t really come

into play when looking at whether to enter into the

arrangement.

“The question shouldn’t be ‘How much money

can we get from this?’ but ‘How does it t with our

mission?’” Constantine said.

If the nonprot concludes that there’s a clear

mission-related advantage and benet to sponsoring

the new group, the next key step would be to draw up

a contract that spells out all of the critical details—

from how donations will be accepted, banked and

spent to who handles communications and publicity

for the project to who ultimately gets credit for the

concept, and everything in between.

“There needs to be very clear lines of responsibility

and power,” he said.

There can be tension in the relationship between

the two entities, where the sponsored organization

bristles at the oversight required by the arrange-

ment—whether that relates to nancial management,

communications or other policies of the nonprot—

but if the sponsored organization doesn’t comply, it’s

the nonprot that has the most to lose.

“Ultimately, the authority and legal responsibility

for the venture lies with the sponsoring nonprot.

And if there’s a problem, the nonprot could face

a legal and reputational liability,” Constantine said.

For the sponsored entity, the greatest risk is a

loss of control over a concept or program that they

worked hard to develop and bring to fruition, he said.

“They usually are giving up some ownership of the

project,” he said, which is another point that should

be negotiated and agreed upon at the outset.

(See SPONSORSHIP on page 8)