The use of a tax sponsor meets the requirements of the IRS as long as the tax sponsor retains the right to decide how it uses the dues. Programs seeking sponsorship should be aware of this and ensure that the tax sponsor they have chosen is truly strong and capable of carrying them out. As a general rule, individuals related to the fellow serve as agents of the fellow to work on the project. But when they raise money for the project, they do so as agents of the tax sponsor. Fundraising must be carried out by the tax promoter, as the fellow does not have the tax status necessary to allow deductible contributions or private fund credits. Work will also continue when two organizations set up a sponsorship. As with any business relationship, communication is the key. Maintaining regular contact between the promoter and the fellow ensures that both parties meet their obligations to each other. Tax sponsorship, if properly structured and implemented, is a valuable alternative to creating a non-profit organization, especially when the viability of a separate organization is highly questionable, the not-for-profit business has a relatively short lifespan, or the founders of the project are unable to properly manage a non-profit, tax-exempt organization. While there will always be stories of abuse, as is the case in all areas, the problem lies in implementation and not in the legitimate practice of tax sponsorship, which is well done.
Tax sponsorships must contribute assiduously to educating the wider community and the field in order to preserve and make the most of this important and often misunderstood form of cooperation. Since most fellows donate from organizations, not individuals, sponsoring taxpayers` money can help you qualify for more funding opportunities so you can fund and start your project earlier. As a result, project founders seeking tax sponsorship should be as selective in selecting an appropriate tax sponsor as a tax sponsor in selecting a project. But it would be a mistake to use a tax sponsor`s administrative tax as a primary selection criterion. The financial health of the financial sponsor, the key staff and the understanding of its legal responsibilities as a tax sponsor are more important. The National Network of Fiscal Sponsors guidelines for full and pre-approved financial sponsorship are unavailable resources to determine whether a tax sponsor`s practices and agreements reflect such a good understanding. Fortunately, a non-profit organization can obtain exempt donations before obtaining a status of 501 (c) (3) as long as it has a tax sponsor. According to lawyer Gregory L. Colvin in his transformative book, Fiscal Sponsorship: 6 Ways to Do It Right, there are several models of tax sponsorship.