Fiscal Sponsor Funds: An Overview

What is a fiscal sponsor fund?

There are two (2) main types of fiscal sponsorships, Model A and Model C. This will be a very broad overview and not delve into the relative aspects of either. Our umbrella runs both, although mainly Model A which is comprehensive and Model C where there is a pre-approved grant relationship with an unrelated entity or person. In either case, the Fiscal Sponsor is the umbrella recognized as the 501(c)(3) and the person or entity contracting with the Fiscal Sponsor is the Fiscal Sponsee. The initiative and all funds must be received by the Sponsor(and not Sponsee). The Sponsor will disburse funds only to advance charitable purposes. It is deemed a public charity and must file its IRS Form 990 each year.


Can you earmark funds for individuals either through a fiscal sponsor fund or a donor advised fund?

Unfortunately, you are not able to earmark funds for a specific individual. In fact, it would be against the law. Now, of course, if you are a donor advised fund, you may disburse funds to qualified charities who may assist individuals but not earmarked. With fiscal sponsorship funds, there are less restrictions on disbursements to individuals, however, you also cannot earmark funds for a specific individual.


Is it possible to use the same 501(c)(3) umbrella to operate both a fiscal sponsor fund and a donor advised fund?

The answer is yes. Many may not run both however, Edward Charles Foundation would allow you to operate under its umbrella these two different types of funds. There are distinctions and subtleties to each.

 Whose income is it anyway?

This question comes up all the time. For tax exempt entities in which the funds are received by a fiscal sponsor, it is income for the fiscal sponsor at the time of receipt. Per industry standards, almost all fiscal sponsor agreements state that all such proceeds received on behalf of a charitable fund (either donor advised or fiscally sponsored) is income of the sponsor or the fund.

Donor Advised Funds: An Overview

What’s wrong with Donor Advised Funds?

 Absolutely, nothing.

 Drew Lindsay of the Chronicle of Philanthropy (the leading publication on all things related to current events of philanthropy) published in an Article January 17, 2019, that assets under the management of donor advised funds have grown to over 110 billion dollars in 2017. In the National Philanthropic Trusts 2018 Donor Advised Fund Report, close to 20 billion was given by donor advised funds to qualified charities, which is roughly 20% whereas private foundations gave $45 billion dollars to qualified charities with all assets from private foundations totaling roughly $855 billion dollars which is 5% (the mandatory distribution requirement under Section 4942 of the Internal Revenue Code).

 That being said, depending on the scenario donor advised funds may or may not be the right charitable structure, it depends on the a variety of factors including the “inputs” and the “outputs”.

Can a private foundation legally make a gift to donor advised fund?

100%, obviously, the charitable gift must comply with all applicable rules and regulations. A donor advised fund is in fact a recognized 501(c)(3) public charity thus, it can receive (and a private foundation can grant) funds to the donor advised fund. The further question would be whether the gift would be eligible as a “qualified distribution” for the private foundation five (5%) mandatory distribution rule. The answer is it would as long as once the gift is made the foundation has “lost” control of the funds.  


I am  a significant contributor to a 501(c)(3) public charity such that aggregate of our contributions may jeopardize the 501(c)(3) status of the recipient public charity, is there any way to avoid this?

Yes, this concept is known as “tipping”, where the funding for a public charity (which is supposed to receive no more than 1/3 of its from general public receives so much funding from an individual (or corporation) that it might violate this rule. To avoid this, the donor may utilize a donor advised fund subject to all of the applicable rules. The donor would make an irrevocable gift to the donor advised fund without conditions and restrictions.