Has your nonprofit ever been involved with getting a new nonprofit activity launched through receiving funds for a specific project, allowing such funds to be spent for the project, and perhaps even seeing the project blossom into its own Section 501(c)(3) organization? These arrangements are commonly known as “fiscal sponsorships.” Fiscal sponsorships may take a variety of forms, but generally they involve innovation, some degree of control and supervision, and an accompanying agreement to address relationship details. Here’s what responsible nonprofit leaders need to know about fiscal sponsorships, if their organization will serve as a fiscal sponsor or if they are the beneficiary recipients of such arrangements.
A Texas federal trial court recently rejected Freedom Path’s challenge to the IRS’s multi-factor “facts and circumstances” test for a nonprofit’s politically-tinged advocacy speech as not unconstitutionally too vague or otherwise legally problematic. The court’s adverse decision deals a setback for free speech interests affected by the IRS’s constitutionally dubious test, as contained in its Revenue Ruling 2004-6.
The Road Thus Far
Nonprofit corporations are creatures of state law for corporate status and operations, while also subject to federal law for tax-exempt purposes. Under which state law should a nonprofit incorporate, and what other state corporate requirements should be considered? The following questions and answers provide guidance in both areas for nonprofit leaders seeking successful development, compliance with related IRS tax-exemption aspects, and long-term organizational vitality.