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<title>Jay's World of Abstracts 00031: Fiscal Agents
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content="An paper on the realities of fiscal sponsorship for charity-seeking groups.">
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<h2 align="right">Jay's World of Abstracts 00031</h2><hr>
<div align="center"><h1>Fiscal Agents</h1>
An interpretation of IRS rules</div>
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<i>[Standard disclaimer: The nature of abstracts are that they are pieces of something larger. Not everyone is going to be happy with my choice of abstracts from any larger work, so if you are dissatisfied, I would refer you to the original document, which should be able to be found on the Internet. I encourage others to make their own abstracts to satisfy their needs. I would be happy to publish them here.</i>
<h3>Jay's Introduction</h3>
<p>Any group that seeks to take donations or grants to do something good for society faces a very challenging problem: the determination of tax exemption. Many groups in our state form a non-profit corporation and seek such determination from the IRS over a long period. This is often only practical for larger groups that already have expertise and funding to become an organization. In our area, groups often use another method, making use of a fiscal agent or, more properly, a fiscal sponsor. There are some advantages to this arrangement, but there are some down-sides as well. Below is a nice, short paper on this subject.</p>
<i>I produced this abstract using time paid for by the Quay County Maternal Child and Community Health Council with funds from the New Mexico Department of Health.</i>
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<h3>Abstracts</h3>
<h1><center>Fiscal Agents</h1></center><p>
In Revenue Ruling 68-489, 1969-2 C.B. 210, the IRS held that
a 501(c)(3) organization can distribute funds to
organizations which have not, themselves, received IRS
recognition of 501(c)(3) status, if certain steps are taken
to insure that the funds are used only for charitable,
educational or other 501(c)(3) purposes.<p>
Only a few guidelines are set forth in the ruling:<p>
<ul>
<li>funds must be used for specific projects in furtherance
of the sponsor�s own exempt purposes
<li>the sponsoring organization must retain control and
discretion as to the use of the funds
<li>the sponsoring organization must maintain records
establishing
that the funds were used for section 501(c)(3) purposes
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Based on this ruling, many 501(c)(3) organizations have
sponsored other, non-exempt organizations or projects.
These arrangements are called by many names - umbrella,
fiscal agent, fiscal sponsorship...<p>
In a typical arrangement, the non-exempt organization
solicits grants or donations, donors make out their checks
to the tax exempt sponsor, and the sponsor pays expenses on
behalf of, or makes a grant to, the non-exempt organization,
sometimes taking a percentage of the donation as a fee. The
sponsor may also take care of reporting for the non-exempt
organization�s employees, allow the use of its bulk mailing
permit, and/or provide office space, use of office equipment
or clerical help.<p>
Many of these arrangements go far beyond the scope of what
is described in Revenue Ruling 68-489. While not
necessarily illegal, these kinds of arrangements can be
risky, precisely because they are carried on within a gray
area of the law. Many small or newly formed non-profit
organizations could not exist without sponsorship of this
kind, but it should not be relied on for a lengthy period of
time, or if substantial amounts of money are involved.<p>
Generally, tax law does not permit charitable contribution
deductions for gifts to non-exempt organizations. If the
IRS perceives a fiscal agent arrangement to be a strategy to
circumvent the law, no more than a conduit or pass through
arrangement, every party involved - the sponsor, the
non-exempt organization, and donor - can end up with tax
problems.<p>
At a minimum, an organization offering to act as a fiscal
agent should adopt a written internal policy governing
sponsorship arrangements, require written proposals from
sponsorees, enter into formal sponsorship agreements with
them, and establish on-going oversight and follow-up
procedures.<p>
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