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Nonprofit Law/fiscal sponsorship


We are an organization registered in District of Columbia as a nonprofit but hasn't got its 501-c-3 status yet. We are planning to do so but for the time being, we are looking for fiscal sponsors to get donations.

We are in conversation with a 501-c-3 organization with aligned mission and projects. They are happy to be our fiscal sponsor. The tricky question we have is that they offer to not charge any admin fees as many fiscal sponsors do, but work as a simple "pass-through". They think our program is a great extension to their programs and they can "pass through" all the donations in name of our organization to us through some sort of reimbursement. They don't mind of acting in the conventional way of fiscal sponsor, but they'd like us to get 100% of the donations we raise or supposed to get.

I wonder 1) is it legit? 2) by doing that, does it hurt our way to apply our own 501-c-3?

The only possible liability is with the 501(c)(3) organization as they need to insure that all funds they have are used for charitable, educational or religious activities in accordance with the regulations for such exempt organizations.  It will not hurt your own Form 1023 application for exemption.

However,  "fiscal sponsorship" is a vague term and I recommend against using it.  The IRS only uses the phrase one time as we can see by a Google search for "fiscal sponsor" "fiscal sponsorship"

In that one paper, from 1994, at
the IRS states, on page 16 "Fiscal sponsorship is an area of current concern for the Service... fiscal sponsorship occurs when one or more charities choose to financially support another charity or nonexempt project."  One page 17 the IRS elaborates, "A nonexempt project, as used in this context, is a charitable activity of an organization that does not have an IRS determination letter."

Therefore, you would be running a "nonexempt project" funded by an exempt organization.  The arrangement is by contract.

Harvey Mechanic, Attorney at Law -

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.  

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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