We have a question about fundraising and sponsoring subgroups. Our homeschool group is planning on filing for 501c3 soon (if we can’t figure it out, we are hiring you!). We have a subgroup (Destination Imagination, comprised of a few smaller groups of kids) that wants to raise money by working basketball games themselves but use our insurance and have us deal with paperwork and money.
We will have a clear understanding of who gets what money and when before we vote on it. They have proposed we keep 5% for our trouble. We are all wanting to say yes, but as president, I need to make sure it’s okay rule/law-wise.
Can you think of a reason not to allow this?
Kristen in Oklahoma
Good luck in your 501c3 application. I can also review the application you fill out. It’s a less expensive option.
What you are proposing is called “fiscal sponsorship” or sometimes “fiscal agency.” It means that one nonprofit organization acts as a sponsor for a project or group that does not have its own tax-exempt status. And as you spelled out, it is typical for the sponsor to charge a fee (5% in your case) for managing the other project or group.
Google “fiscal sponsorship” to get a better idea of what’s involved.
I would recommend you wait until you have tax exempt status (or at least have applied for it) before considering a fiscal sponsor arrangement.
Also put the agreement in writing, so all parties know what is required of the and the length of the agreement (at most one year and renew it every year). Sounds like you were going to do that.
Make sure the arrangement doesn’t put you over any IRS threshold. For example, if your gross annual revenue is more than $50,000/year, you will need to file the Form 990-EZ or 990, not the simple online Form 990-N. If Destination Imagination income causes you to hire someone to prepare the more complex Form 990-EZ/990, are you making enough from DI to cover that added expense?
Carol Topp, CPA