Can a Nonprofit Corporation Be an Umbrella for Another Nonprofit?

Because of the expense and time required to achieve tax-exempt status, some charitable groups seek out an alternate structure that will allow them to receive tax-deductible donations without holding official nonprofit status. The primary way to accomplish this is by having a registered nonprofit organization serve as a group's "fiscal sponsor."

Fiscal sponsorship is an arrangement whereby a registered nonprofit organization partners with a charitable group that is not tax exempt. The nonprofit organization shares its tax-exempt status with the non-registered group. The primary benefit to the sponsored organization (also called the "fiscal agent") is the ability to receive tax deductible gifts from supporters through the sponsor.

Fiscal sponsorship arrangements are normally codified with a signed agreement between the two organizations. The relationship between the two can vary depending on the desired structure. The most common arrangements include "comprehensive fiscal sponsorship," whereby the agent organization serves as a project of the sponsor, which handles all back office activities for the sponsored group, and "grant relationship fiscal sponsorship," whereby the fiscal agent has much more autonomy and the sponsor serves only to ensure that the agent organization is correctly using charitable gifts and meeting both the requirements of the law and of the sponsorship agreement.

Most nonprofit organizations do not serve as fiscal sponsors and many are precluded from doing so through their bylaws. The best way for a charitable group to find a fiscal sponsor is to approach large nonprofit organizations working in the same mission field. Sponsoring organizations normally only sponsor projects and groups working in a similar geographic and mission area. In recent years, a number of nonprofit organizations have been launched whose primary focus is to serve as fiscal sponsors for projects and groups working in the sponsor's area of expertise.

Several risks are involved in forming a fiscal sponsorship arrangement. For the sponsoring organization, there is the possibility that the agent will not properly solicit, use and report charitable donations. Agent organizations need to take care that the written agreement spells out who owns the work product for the sponsored project and ensure that they are not annexed into the parent organization without desiring that outcome.