When discussing the application for federal tax-exempt status, we are often asked this common question: When will I be able to start taking donations? Certainly, you can start accepting “donations” at any time. However, the more important question to ask is when will my donors be able to write all or a portion of their contribution off? After all, this is why nonprofits obtaining 501(c)(3) tax-exempt status is so important!
Until you receive your determination letter from the IRS granting your organization tax-exempt status, donors cannot make tax-deductible contributions. In the charitable contribution world, this is not attractive to donors. Consequently, a new or” startup” nonprofit is often unable to tap into certain funding. However, all is not lost- in comes the fiscal sponsor!!! Fiscal sponsorship is a tool used often by newly formed nonprofits that need to raise money before they are tax-exempt.
Essentially, the fiscal sponsor serves as an administrative “home”. Charitable contributions are given to the sponsor, which in turn grants them to support the newly formed organization’s program or cause.
Of course, there are certain requirements and many potential pitfalls!!! Failing to craft and execute this arrangement the right way may cause the IRS to ignore the “sponsor” and consider any contributions made to a non-501(c)(3) organization. You do not want this to happen! Call C&G to assist you today!
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