How Does Fiscal Sponsorship Work? The Benefits of Fiscal Sponsorships in the Arts

Receiving funding can be one of the greatest challenges a dance artist or organization faces when venturing out on their own to produce their work.

Getting a charitable dance project off the ground requires know-how, initiative, and patience. Establishing a 501(c)(3) requires formal structure and an administrative load that can be overwhelming for those who are just getting their feet wet.

There is another option to kickstart your charitable project without the heavy time and energy investment on the front end. 

With fiscal sponsorship, you can get access to resources available to non-profits without the detailed and costly process involved in getting your own 501(c)(3).

In this guide, we’ll discuss what fiscal sponsorship is, how it works, and the benefits you could receive from being in a fiscal sponsorship relationship.

what is a fiscal sponsorship

Table of Contents

What Is a Fiscal Sponsorship?

Fiscal sponsorship is when a nonprofit organization lends its tax-exempt status to an artist or entity that is involved in charitable work. 

Fiscal sponsorship can be a viable solution for artists or entities who may not be ready or able to take on the formal structure or administrative load that is required to be recognized by the IRS as a nonprofit.

An organization with 501(c)(3) status may sponsor an artist or group whose activities and goals are related to the sponsoring organization’s mission. This gives the sponsored entity an alternative to becoming a 501(c)(3) and allows them to begin their charitable project and receive the benefits of tax-exempt status without the cumbersome and often expensive 501(c)(3) process. 

What Fiscal Sponsorship is NOT

The term “sponsor” can be confusing, so let’s clarify. When a business provides financial support to a project, it is commonly referred to as sponsorship. However, fiscal sponsorship is different as it does not involve a direct monetary exchange between the two entities. Instead, it establishes a relationship that enables the sponsored entity to raise funds from other sources that are eligible for tax deductions.

what does a fiscal sponsor do

How Does a Fiscal Sponsorship Work?

Fiscal sponsorship works by partnering with an existing non-profit organization that can extend their tax-exempt status to you for the purpose of taking tax-deductible donations, writing grants to foundations, and receiving funds from those foundations.

The sponsoring organization often manages many aspects of the project on behalf of the sponsored artist or group while also providing accountability. 

To get a clearer picture of how fiscal sponsorships work, let’s consider the following:

  • How the sponsor is involved
  • Who benefits from the process
  • Why sponsorships are advantageous

The How

Exactly what does a fiscal sponsor do?

The sponsor may take care of tasks like:

  • Accepting tax-deductible donations
  • Providing donation receipts
  • Submitting grant proposals
  • Receiving and processing financial grant awards

In addition, the sponsoring organization also takes responsibility for how those funds are used. This provides a safeguard against a mere pass-through for charitable funds. 

In short, the sponsoring organization’s status is on the line, so the sponsor will want to be diligent and thorough to make sure the proper processes are adhered to.

To fulfill our mission to enhance the prosperity and visibility of dance in Portland and to inspire more people to get involved, Dance Wire is proud to have developed a fiscal sponsorship program for dancers and dance groups. To learn more about our fiscal sponsorships, click here.

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The Who

An independent artist or group working on a specific artistic project that is charitable in nature and also supports the mission of the sponsoring organization could qualify for fiscal sponsorship. 

The following are examples of artists and projects that could benefit from fiscal sponsorship:

  • An independent artist working on a specific project, like a dance film or one-off show
  • A choreographer who is trying to build a base of supporters and who may eventually want to start their own company
  • A dance studio that wants to host a street fair to raise money for their school program that serves low-income youth
  • A dance company that wants to be a nonprofit in the future but isn’t ready to take that step

A sponsoring organization can be a powerful impetus in helping someone make their nonprofit dream a reality.

The Why

For so many artistic projects and productions, ticket sales do not cover the entire cost of creating and producing the work. This makes it necessary to raise additional funds.

That’s where fiscal sponsorship comes into play. 

By engaging in a partnership with a sponsoring organization, an artist or entity involved in charitable work may be better able to raise funds, accept donations, and receive eligible grant funding.

FAQs About Fiscal Sponsorship

Why Are Dance Projects Eligible for Fiscal Sponsorships?

Even though the arts may be considered a charitable purpose, it may be difficult to know which artistic projects fit under the nonprofit umbrella with the IRS.

The arts can fit under two categories, those whose purpose is:

  1. Charitable and/or 
  2. Educational

For an artistic project to be considered educational in purpose, it should aim to train, instruct, or improve artistic skills. The project could also include instruction for the public that benefits individuals and/or the community.

The truth is, this is IRS language that can be very tricky and nuanced. Dance Wire offers a free Intro Consult to Oregon artists to clarify if your project is considered charitable and if our program is a good fit.

How Long Does Fiscal Sponsorship Take?

The time it takes to become fiscally sponsored can vary from organization to organization.

Factors that can affect the sponsorship timeline may include:

  • The application process
  • How often the sponsoring panel meets for interviews
  • The size of staff and their availability
  • The number of sponsorships available 
  • The length of the waitlist

Though the wait time to secure a fiscal sponsorship is variable, it’s likely to take mere weeks as opposed to the average six to nine months it takes to gain 501(c)(3) status. It’s also reasonable to expect fiscal sponsorship to be cheaper than getting tax-exempt status, which costs $600, in addition to any attorney’s fees that may be required.

What Sets Dance Wire Apart from Other Fiscal Sponsors?

Many fiscal sponsorship programs charge a vague administrative fee and lack clarity on exactly how they will support the project. 

Dance Wire supports each of our projects through 1:1 Sessions. These sessions are a combination of coaching, consulting, and mentorship that help us get to know each project in-depth, but more importantly, set them up with the tools they need to succeed at their project and in the future. The sessions are customized, though all will start with the basics:

  • Writing out their complete vision and all the steps necessary to complete it.
  • Making sure their budget is in order and clear, providing templates if needed.
  • Setting them up with a cash flow/projection spreadsheet to supplement their budget.
  • Supporting their grant process (if applicable)
  • Setting them up with a fundraising campaign through our fundraising platform that they can embed on their own site.
  • Sharing our donor tracking templates, using Airtable, so they can begin cultivating, tracking, and appreciating donors for this and future projects
  • Reviewing contracts with dancers/contractors/venues and helping them create contracts if needed.
  • Supporting them with creating a marketing strategy.

If a project has all the basics in order we will move on to things more specific to their project – securing permitting for their location, submitting their work to a film festival, finding ways to engage the community in their presentation.

We want to make sure our artists are supported and encouraged each step of the way! Any money we are receiving from the artist is actively used to build their skills and expand their network through our expertise and connections.

what is a fiscally sponsored organization

Are There Any Disadvantages to Fiscal Sponsorship?

Though fiscal sponsorship is incredibly beneficial for many artists and organizations, some potential shadow sides could include the following:

  • Using a fiscal sponsor in a different state may make you ineligible to receive funds from foundations who only serve your geographical region.
  • Communication may be challenging because of the extra layer added between granting agencies and recipients.
  • There’s a risk of losing funds if the project mishandles funds or is otherwise financially irresponsible.
  • Artists should read the fine print of their contract because some fiscal sponsors retain exclusive rights of the artistic work!

Dance Wire conducted in-depth research and assembled a group of people including artists, lawyers, board members, and foundation CEO’s to help advise on the program and avoid many of these drawbacks. 

Our program meets the legal criteria and standards Foundations can be concerned about. We assure the artists retain legal control and rights to their work and value transparency so the relationship isn’t murky. Our 1:1 Sessions provide built-in assurance that funds are spent as specified by the project so as not to put our non-profit status at risk with the IRS.

Dance Wire’s mission is to support each artist, organization, or project in a way that empowers, equips, and lifts up. We strive to help artists overcome any obstacles by providing wisdom, experience, and beneficial resources.

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Still Have Questions About What Is Involved in Fiscal Sponsorship? Contact Dance Wire for More Information

Are you an Oregon dance artist and are ready to get your dance project off the ground? Dance Wire can help.

Our fiscal sponsorship program includes one-on-one coaching where we’ll share our expertise and networking resources to make sure no dance artist’s voice falls flat due to a lack of execution.

We want to sponsor as many eligible projects as possible. 

However, we’ll only take on the number of projects that allow us the time and room to mentor properly. If our sponsorships are full, we place eligible sponsorships on a waitlist – so it’s best to get started as early as possible for your project.

With our stamp of approval from legal experts, foundation CEOs, board members, and working artists, Dance Wire is a name you can trust. 

Learn more about how Portland’s dance hub can get you connected with the best resources for your success.

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