4. What tax will you be charged? When is it taken? Is it refunded on unused funds if you transfer tax sponsors or end your relationship? Tax sponsorship is an agreement where by which a project or organization without tax-exempt status – but which could qualify for it – engages with an existing tax-exempt organization to obtain donations and grants. It is in the interest of all parties concerned that tax sponsorship agreements are put in place in an appropriate manner. Some things you need to keep in mind are the following: The pricing structure should be defined in the tax sponsorship agreement or guidelines. Fees can range from tokens to 25 percent, but an average tax is about 10 percent. Some tax sponsors take it from revenue when it is received; others take the costs of expenses as they are incurred. (You can find a national list of tax sponsors in fiscalsponsordirectory.org. This directory, managed by the San Francisco Study Center, contains information about each tax sponsor, including fees.) 2. Do you understand the impact of the tax sponsorship model used by your project? This is another way to verify whether the tax sponsor exercises adequate “discretion and control” over the given funds. As a general rule, the sponsor will not participate in the artistic decisions, but will verify that the project will be carried out in accordance with the plans of your grant application and the PSP`s contract with the sponsor.
When a person or entity makes a pass-through grant or donation to the tax sponsor, the IRS treats this as if the donation or grant were made directly to the project. And since the project is not exempt from tax, the donation or grant is not tax deductible. Edie`s report gave rise to a phase of debate within the voluntary sector on what was then called a budget agency. Well, those who are aware never use the term “tax agent” because it implies that the tax sponsor is the tax-sponsored project agent (FSP), although it actually works backwards. The PSF is the agent of the tax sponsor who assumes legal responsibility for the activity of the sponsored project. A real tax agent would be exactly the situation that the IRS prohibits. For more information on tax sponsorship, see the Oregon Nonprofit Corporation Handbook, in Gregory L. Colvins` book, Fiscal Sponsorship: Six Ways to Do it Right and on the Tides Center website. – What is tax sponsorship? How do I find a tax sponsor? Please note that tax sponsorship policies and policies are unique for each tax sponsor and project. Nevertheless, it can be helpful to see what issues are typically addressed in tax sponsorship agreements so you can prepare accordingly. Longtime cautious scholars may remember the excitement created in 1989 by John Edie, the lawyer for the Council on Foundation, when he wrote Use of Fiscal Agents: A Trap for the Unwary. Unfortunately, this report casts a shadow over the concept of tax sponsorship, which still exists in some quarters.
However, since that time and over the past twenty years, the practice of tax sponsorship has continued to grow, organize itself and become increasingly sophisticated. The publication this spring by the National Network of Fiscal Sponsors (NNFS) of guidelines on best practices in tax sponsorship has likely helped grow the tax sponsorship industry. (To link to these policies, go to tidescenter.org/fileadmin/tc_pdfs/nnfs/NNFS-Guidelines-for-Comprehensive-Fiscal-Sponsorship.pdf.) 1. Do you have a written agreement with your tax sponsor? Any nonprofit recognized as exempt by the IRS under Section 501(c)(3) may constitute tax assistance. If you already work closely with a 501(c)(3) organization, you should ask them to be your organization`s tax sponsor. . . .