We`ve published many other useful resources on an additional site for those looking for more details and ideas on where to find a tax sponsor or what you should think if your organization is considering serving as a tax sponsor. A tax sponsor is a not-for-profit organization that provides fiduciary oversight, financial management and other administrative services to develop the capacity of non-profit projects. Tax sponsorship is often used by newly created non-profit organizations, which must raise money during the start-up phase before being recognized as exempt by the IRS. The use of tax sponsorship allows a program or organization that is not itself considered tax-exempt to obtain funds for its transactions which – via the tax sponsor – are tax deductible for donors. As a result, tax sponsorship agreements benefit organizations or programs that are not tax-exempt by providing a debit route for income that the organization might not otherwise be able to collect. It is quite common and entirely acceptable for the tax promoter to calculate administrative costs for its services, which is usually a percentage of the sponsored organization`s budget or program. The use of a tax sponsor meets the requirements of the IRS as long as the tax sponsor retains the right to decide, at his sole discretion, how he will use the contributions. Maintaining control of donated funds is a precondition for the legitimate tax sponsorship agreement. The use of a tax sponsorship agreement attracts donors, even if they are not yet recognized as tax-exempt under Section 501 (c) (3) of the Internal Income Code. For the most part, the tax sponsor serves as an administrative “homeland” for the cause.
Non-profit contributions are made to the financial organization, which then allocates them to support the cause. Learn more about tax sponsorship in this short video (NEO Law Group). The role of the tax sponsor may include performing many different administrative functions on behalf of the sponsored organization or program, including the assumption and management of charitablely funded contributions on behalf of the sponsored organization. Some tax sponsors do a lot more, z.B. back-office features. It is best to outline the responsibilities and obligations of both parties in a written agreement between the tax sponsor and the sponsored organization. An example is published below. The agreement should provide that the tax sponsor is responsible for complying with the legal provisions regarding the receipt, reporting and recognition of donations of public utility. The agreement should also describe the administrative costs that the sponsored organization makes available to its tax sponsor, as well as all the responsibilities that the sponsored organization owes to the tax sponsor.