Community Foundation Sonoma County grants are awarded to support a wide range of projects, from multi-year initiatives to grassroots community efforts.
Although we require that each grantee operate as a nonprofit entity with tax-exempt status under section 501(c)(3) of the Internal Revenue Code, we are aware that some worthwhile projects may not have this status.
Therefore, we will consider awarding grants for the activities of non-exempt groups (those that are not 501(c)(3) organizations) that have an established relationship with a fiscal sponsor that does have this tax-exempt status under the following circumstances:
Step 1: The non-exempt group presents a written proposal to the potential fiscal sponsor describing the specific project that will be carried out.
Step 2: The potential sponsor evaluates whether the project is charitable and aligned with its tax-exempt purposes
Step 3: If approved, the fiscal sponsor and the non-exempt group sign a written agreement that outlines the terms and conditions that apply to the non-exempt groups’ use of funds and relations with funding sources. The specifics of work that will be done with grant funds should be detailed here as well.
Step 4: The agreement between the non-exempt group and the fiscal sponsor should be made known to potential funders when seeking funding for the project.
Step 5: Grants awarded for the project are paid to the fiscal sponsor, which then disburses funds to an account set up specifically for the project; this can be an internal account of the sponsoring organization, or an external account set up by the non-exempt group.
Step 6: The non-exempt group makes written reports to the fiscal sponsor detailing financial expenditures and the activities of the project. Reports to funders may also be required from the non-exempt group and /or the fiscal sponsor.
NOTE: Unless the grant falls within an exception defined by the IRS, it should be included on the recipient’s tax return. This may apply to both grants made to the fiscal sponsor and the resulting disbursements by the sponsor to the non-exempt group. Any donated funds are shown on the books and IRS Form 990 of the sponsoring organization, and funds that are re-granted to the non-exempt group should also be shown on the entity’s books. The fiscal sponsor and the non-exempt group should consult their tax or legal advisors for guidance on the tax implications of such arrangements because the liability depends on the purposes of the grant, the types of expenses covered, the structure of the relationship between the sponsor and project, and the nature of each group.
(Much of this information was adapted from Fiscal Sponsorship: 6 Ways to Do It Right, by Gregory L. Colvin, Silk, Adler & Colvin, 1193. Copies are available from the Study Center Press, 1095 Market Street, Suite 602, San Francisco, CA 94012, 1-800-484-4173.)
For more information, see the Fiscal Sponsorship FAQs.