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The Fiscal Sponsorship Model: A Growing Trend in the Nonprofit Sector

by Jeff Williams and Alexandra Akaakar
The Fiscal Sponsorship Model: A Growing Trend in the Nonprofit Sector
Front cover of the "11 Trends in Philanthropy for 2024" reportThis article was first published in our 11 Trends in Philanthropy for 2024 report. Explore the full report here.

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“I want to start a nonprofit” is an unsurprisingly common phrase heard in the nonprofit space — whether from practitioners or legal and philanthropic advisors. Often, the answer is, “Don’t” (Bradrick, 2015; Spicer, 2021; Takagi & Chan, 2009). After all, the process of establishing and managing a nonprofit involves a multitude of challenges, including:

  • handling back-office operations such as human resources, insurance, and financial management;

  • obtaining legal certifications like certificates of incorporation, tax exemptions, and charitable solicitation licenses;

  • forming and managing a volunteer board of directors; and

  • cultivating and activating donors.

Moreover, the nonprofit sector already houses nearly 1.85 million organizations (IRS, 2023), potentially leading to service and mission duplication.

In response to these challenges — and as our colleagues Mandy Sharp Eizinger and Tory Martin noted in last year’s Trends report — fiscal sponsorship continues to emerge as an alternative model that allows individuals or groups to engage in charitable activities without establishing a separate nonprofit entity. As the National Council on Nonprofits (n.d.) notes, “In essence the fiscal sponsor serves as the administrative ‘home’ of the cause” (para. 1).

What is Fiscal Sponsorship, and Why Adopt this Model?

Fiscal sponsorship is a relationship in which an unincorporated group or project seeking to carry out charitable activities affiliates with an existing 501(c)(3) nonprofit organization that shares a compatible mission. Multiple models of fiscal sponsorship exist, each offering a slightly different approach (Colvin & Petit, 2019). However, the most common model, known as Model C or the “preapproved grant relationship,” involves the fiscal sponsor receiving and managing funds on behalf of the project (FiscalSponsorDirectory.org, 2023, para. 18).

As noted by Spack (2005), “fiscal sponsorship is by definition a behind-the-scenes service, … often under the public and philanthropic radar” (p. 24). That last point is important to note: fiscal sponsorship — either as the host or recipient organization — is not currently disclosed on any of the IRS Form 990 annual returns, nor is fiscal sponsorship required to be disclosed on websites or annual reports (Andersson & Neely, 2019). Even so, there are key situations when fiscal sponsorship is the preferred way of implementing a nonprofit’s services (National Council of Nonprofits, n.d.):

  • when newly formed nonprofits are fundraising before they seek independent status with the IRS;

  • when a new or existing nonprofit wants to test drive an idea or service that could be a spin-off entity; and

  • when a collective, organization, or program:

    • decides that it prefers to focus its efforts on fulfilling its mission instead of on supporting or ancillary activities; or

    • decides that an existing nonprofit has office staff, supporting vendor relationships, fundraising operations, or other resources that it can leverage or purchase cheaper than if it did so on its own.

Additionally, there are many reasons why this model is becoming more attractive:

  1. Efficiency and Shared Administration: By leveraging the infrastructure and experience of existing nonprofits — including financial and risk management, human resources administration, and even capacity-building support — projects can focus on their vision and mission while keeping costs low (Andersson & Neely, 2017; Trust for Conservation Innovation, 2014; Sattely, 2017; Takagi, 2020).

  2. Lower Barrier to Entry: Individuals and groups seeking to engage in charitable activities can immediately access tax-exempt contributions and grant support without the need to navigate the complex process of establishing a separate nonprofit (Sattely, 2009).

  3. Regulatory Compliance and Trust: “Simply stated, fiscal sponsors place responsibility for implementing programs in the hands of project leaders while ensuring appropriate [legal and] fiduciary oversight” (National Network of Fiscal Sponsors, n.d., para. 1).

  4. Support Network: Fiscal sponsorship provides a built-in network for physical, intellectual, and emotional support (Sattely, 2009) as well as leveraging an existing board of directors — because finding volunteer board members is often one of the largest challenges of a nonprofit startup (FiscalSponsorDirectory.org, 2023).

Increasing Interest in Fiscal Sponsorship

Fiscal sponsorship traces back to a community-based public health initiative in Massachusetts in 1959 (Sattely, 2009). However, interest in the model has been steadily growing over the past two decades.

  • The Fiscal Sponsor Directory, managed by the San Francisco Study Center, has seen an increase in the number of sponsors registering with the directory from 2009 to 2019 (Andersson & Neely, 2019). More than two-thirds of the fiscal sponsors listed in the directory were established in 2000 or later — and the listed 380 sponsors are home to nearly 19,000 separate projects (Fiscalsponsordirectory.org, 2023). See Figure 1 for calculations from the authors based on archived directories.
Figure 1: Total Number of Fiscal Sponsor Organizations Listed in the Fiscal Sponsor DirectoryFigure 1: Total Number of Fiscal Sponsor Organizations Listed in the Fiscal Sponsor Directory (Data: 2018 - 218, 2020 - 325, 2021 - 348, 2022 - 358, 2023 - 380)
  • While the Fiscal Sponsor Directory maintains the largest — and longest available — directory, not every fiscal sponsor is listed. According to one of the directory staffers,

[W]e know their numbers also are going up. Using Google Alerts, we’ve maintained a list of them for years: The list rose from about 400 in 2021 to 535 last year, and today it’s 600. Combining that list with the Directory’s sponsors puts the known number of fiscal sponsors nationwide at almost 1,000, nine times those surveyed in the first field scan in 2006. (Beggs, 2023, para. 11)

  • In November 2023, Social Impact Commons and the National Network of Fiscal Sponsors released the first major comprehensive scan of fiscal sponsorship in seventeen years. Their report, Fiscal Sponsor Field Scan 2023, found that “three times as many sponsorship programs were created in the last 20 years than were created in the 40 years prior to 2000” (p. 4), further documenting the increasing growth in the last two decades. The field scan provides detailed information on more than 100 fiscal sponsors who collectively administer over 12,000 charitable projects with 18,000 employees or contractors.

Anecdotal support for increasing interest in fiscal sponsorship is also relatively easy to find.

  • Organizations like NOPI, a nonprofit incubator in Massachusetts, received applications for fiscal sponsorship and startup support from more than 70 entities nationwide in its last round of funding (2022).

  • Google searches for “fiscal sponsorship” as a topic have nearly doubled from January 2019 through September 2023. See Figure 2.1
Figure 2: Total Google searches for “fiscal sponsorship” as a topic, Jan. 2019–Aug. 2023

Figure 2: Total Google searches for “fiscal sponsorship” as a topic, January 2019–August 2023 (Line graph shows a steady increase in searches, from 41 in Q1 of 2019 to 72 in Q3 of 2023)

Issues and Challenges

The major issues surrounding fiscal sponsorship include:

  1. Lack of Awareness: Smaller entities in the nonprofit sector often lack awareness of the option to obtain a fiscal sponsor, which could provide them with much-needed capacity support and administrative efficiency (Andersson & Neely, 2019).

  2. Enhanced Disclosures and Transparency: Limited public disclosure of fiscal sponsorship activities can conceal the allocation of resources between the sponsor and the recipient organization, making it challenging for external stakeholders — including funders — to understand how nonprofit resources are used to support recipient organizations (Andersson & Neely, 2019). As noted above, nothing about fiscal sponsorship is currently required in any public disclosure or IRS Form 990 annual return.

  3. Risks and Challenges for the Host Organization: As Spack (2005) notes, “fiscal sponsors are legally responsible for all of the activities of the groups they house. They must therefore screen those organizations carefully before agreeing to partner and must engage in diligent oversight. Sponsoring a nonprofit that has shaky finances or disarrayed leadership and governance is asking for trouble. On the other side, the group that gets sponsored is dependent on the competence of its sponsor’s staff and the reliability of its systems.” (p. 23). Proper due diligence is essential for both sponsors and sponsored projects to avoid potential issues (Takagi, 2020; Bradrick, 2015; Spack, 2005).

Conclusion

The fiscal sponsorship model provides a practical alternative for individuals and groups looking to engage in charitable activities without separately incorporating or standing up their own supporting activities — but with some risks to both the program and the host organization. When implemented properly, fiscal sponsorship offers the potential for efficiency, collaboration, and resource optimization. The increasing presence of this model in the nonprofit landscape and the number of fiscal sponsor organizations at both the regional and national levels demonstrate the model’s utility in the charitable sector.

_______________

1 Calculations by the authors from raw data are available at https://trends.google.com/trends/explore?date=today%205-y&geo=US&q=%2Fm%2F03gsyqm&hl=en.

Jeff Williams, M.A., M.B.A.
Jeff Williams, M.A., M.B.A.
Director, Community Data and Research Lab
Jeff Williams joined the Johnson Center as the director of the Community Data and Research Lab (CDRL) in February 2020. In this role, he leads a team of researchers, evaluators, database experts, and web developers who provide insights into nonprofit...
Alexandra Akaakar, M.S.
Alexandra Akaakar, M.S.
Data Analyst
Alexandra Akaakar joined the Johnson Center as a data analyst in January 2022. In this role, she supports data collection, presentation, and analysis for the Community Data and Research lab, including dashboards that effectively communicate the evaluative successes of Johnson...
References

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Andersson, F. O., & Neely, D. G. (2019). Bringing fiscal sponsor activity to light. Nonprofit Policy Forum, 10(1). https://doi.org/10.1515/npf-2019-0021

Beggs, M. (2023, June 13). Fiscal sponsorship: Up and up. FiscalSponsorDirectory.org. https://fiscalsponsordirectory.org/?p=12947

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Trust for Conservation Innovation. (2014, March). Fiscal sponsorship: A 360 degree perspective. (2014). https://www.chicago.gov/content/dam/city/depts/dca/Grants/nap/fiscalsponsorship.pdf