[Kate]

Kristin,

Your new accountant is correct that any revenue that is received by the nonprofit should be reported on the 990. While there isn’t a way to report them “below the line”, you can communicate how the funds are re-distributed by how you complete Part III: Statement of Program Accomplishments. You can describe this aspect of your work as a program. You’ll see that this includes a line for revenue and grants made for their program. The fact that those amounts offset will help tell your story. You’ll find with the full 990 that you have more opportunity to tell your story on this form.

[Kate]

Roger,

I had a memory of an earlier discussion on this topic and found it here. The gist of the discussion was comfort with money market funds that are liquid and invested in low risk cash type investments. Many nonprofits are earning decent extra income from their available liquid funds. https://nonprofitfinancials.org/forums/topic/reserves-are-great-to-have-how-to-invest-and-manage-them/

[Kate]

Hello, Jeff, I can answer most of your questions. Of course, there’s always an “it depends” element, too.

One important distinction for all of these is the choice of which Model of fiscal sponsorship, Model A, comprehensive fiscal sponsorship, the project operates within the sponsor 501c3 nonprofits. For Model C, Pre0approved Grant relationship, the project is a separate legal entity (but usually NOT a 501c3) from the sponsor, who IS a 501c3. I had much more experience with Model C than with Model A, but I’ll note the basic differences in my responses.

1. If a project is incorporated, do they also have their own Board? If that is the case, how does the sponsor board interact with the sponsee board?

The sponsor can specify if a separate board is required for the sponsored project. Many sponsors do require or recommend a board. The interaction between the two boards would be up to you and is not required (and there often isn’t much, if any.

2. In a 1023, does a potential fiscal sponsor need to identify fiscal sponsor services in order to be approved to provide such services?

If fiscal sponsorship is expected to be a significant area of focus, this might be a good . It is generally not required as long as the activities of the sponsored project that are carried out through the fiscal sponsorship is a charitable purpose that falls within falls within the mission, purpose, and activities of the sponsored organization.

3. How closely must the mission or tax-exempt purpose of the sponsor be aligned with the sponsee?

It must fit within the charitable purpose of the sponsored organization.

4. In order to accept donations by a sponsor on behalf of the sponsee, who are the checks written to? can the Sponsor create a d/b/a for the sponsee to accept checks in the name of the sponsee?

The sponsor is the 501c3 accepting and taking responsibility for the charitable use of the donated funds, so checks should be made out to the sponsored organization.

5. What are the key terms to address in a fiscal sponsor agreement regarding the sponsee’s exit? Can the fiscal sponsor be required to transfer sponsee $$ or is it in their discretion?

The funds are held by the sponsor for the charitable purpose and there is discretion, but how funds will be handled at exit should definitely be described and agreed to in the agreement. The legal form of the agreement has too many provisions to answer in this short reply. There are templates that will be included in the follow up to the webinar and in the Fiscal Sponsorship: 6 Ways to Do It Right book by Gregory Colvin.

6. When a sponsored project wants to hire employees, are they employees of the sponsor or the sponsored project?

The depends on whether this is a Model A or Model C. For a Model A, they are employees of the sponsor. For Model C, they are employee of the sponsee.

I hope these basic responses are helpful, Jeff. I highly recommend that you get the book by Greg Colvin and consult with an attorney (which I am not) about the legal questions.

[Kate]

I have experience as a fiscal sponsor, though not for a 501c7. The key question is how to assure that the funds will be used for eligible charitable purposes under the 501c3. Otherwise, the form of entity is less important than the clear language and controls in your fiscal sponsorship agreement. Make sure that the 501c3 sponsor has discretion over the funds. Because the sponsee is already a legal entity, a Model C fiscal sponsorship probably works best. (and caveat, I’m not a lawyer …)

[Kate]

Thanks for adding this, Andrew. I made an assumption that I did not state that the request for fiscal sponsorship is probably limited to a project or purpose that will be funded with charitable funds. Again, this is a situation that needs legal guidance.