The Legal Value of Fiscal Sponsorship: A Proposal of New Law

With social conscientiousness as a core value, American society has utilized nonprofit organizations to motivate social change. But as resources are finite and expertise in the complex legal, operational, and organizational nature of charitable organizations is limited, startup or small and local nonprofit organizations are having a harder time getting off the ground. Fiscal sponsorship—a term of art used to describe the relationship between social entrepreneurs and a tax-exempt organization—provides a functional framework to charitable projects that cannot or choose to not obtain tax-exempt status. Fiscal sponsorship provides a business mechanism to advance the nonprofit sector, as it facilitates collaboration, increases efficiency, provides infrastructure, and gives value to funders. Though fiscal sponsorship is an asset to the nonprofit sector, it is not a concept that is defined by the Internal Revenue Code or state corporate laws. As a result, this complex practice of fiscal sponsorship is not well-utilized. As a practical construct that addresses market failures and motivates social change, fiscal sponsorship needs formal recognition in the law. New state corporate codes and Internal Revenue Code provisions cementing fiscal sponsorship in the doctrines supporting nonprofit law are necessary to continuous growth in the nonprofit sector