On February 19, 2019, George Constantine was quoted in The Chronicle of Philanthropy about things nonprofits should considering when becoming a fiscal sponsor. According to the article, many organizations seek an established nonprofit to serve as a fiscal sponsor. Doing so allows a fledgling group to solicit donations while it waits for the IRS to process paperwork and grant tax-exempt status. Because the sponsor often provides workspace and advises the sponsored organization, a start-up charity often can get a home base and a mentor relationship from the arrangement. Here are some tips that Mr. Constantine advises nonprofits to be aware of:
- An organization that serves as a fiscal sponsor can incur risks, such as threats to its reputation or the possibility of turning off donors who are not fans of the new link of work
- Don't view the new group as simply "renting out" your 501(c)(3) status. A sponsored organization's actions in the community will reflect on the parent organization. "Any missteps could cause reputational harm"
- "If there isn’t a concrete strategy, it raises some red flags." By granting sponsorship, the sponsor signals that it has bought into the smaller organization's business plan
- Without clean language in an agreement, "inertia can always set in. It's important to be clear upfront that the relationship is not permanent."