Nonprofits and Fiscal Sponsors

Through the course of your fundraising campaign you will have thousands of dollars to keep track of. Keeping good records is more than putting donations into the bank and watching the pile grow. You will need to keep track of who has donated cash, products, and services, exactly how much money that is, and what they expect in return.

There’s more than collecting money. If you have formed your own nonprofit organization, or are sponsored by a nonprofit that will be exacting a service fee, you will need to maintain precise and accurate records. Experienced skatepark advocates enthusiastically recommend that beginning advocates employ the services of an experienced bookkeeper, accountant, or treasurer (on a volunteer basis).

All of the business of running an effective advocacy group brings a host of challenges. If you are leading a group, you’ll find less of your time spent doing the “fun stuff” of advocacy and more of your time keeping things from spinning out of control, especially as the project matures.

Many groups express an early desire to form a nonprofit organization. Most effective advocates don’t recommend this, especially not right away. Instead, it’s often preferable to pursue a relationship with an existing nonprofit that you raise funds for and they hold those funds in a special skatepark account.

Nonprofit Organization

Nonprofit organizations are businesses that focus on charitable work. Due to the important nature of their work, the federal government grants them tax-exempt privileges. They don’t need to pay income tax on the money they raise. Furthermore, and more importantly, people that donate to the nonprofit don’t pay tax on that donation. Tax exemption is usually not enough of an incentive for someone to donate, but it does provide a small benefit to the primary value of supporting the important community skatepark.

Nonprofit organizations are sometimes referred to by their IRS tax designation: 501(c)3. Nonprofit organizations cannot sell products or services. This prevents a company, for example, from making skateboards as a 501(c)3 and not having to pay taxes on its revenue. With these savings, they could sell their boards for much less and that would give them an unfair advantage in the marketplace. There are lots of other restrictions put on nonprofit organizations.

Forming a 501(c)3 is an elaborate process that requires annual updates to your state’s Secretary of State and the Federal IRS. To form a nonprofit, you must first register with your Secretary of State as a not-for-profit business. This essentially makes your group a legal business group. After you’re a legal business, you apply for nonprofit tax exemption through the IRS. The IRS reviews your application and (hopefully) approves it. From that point on, and provided that you submit all of the required paperwork every year, you are a bona fide nonprofit organization. The entire process costs about $300, depending on any professional services that you hire to help you, and takes a few months. There are LOTS of instructions, forms, and information written in legalese. If you are uncomfortable with legal business terms, concepts, and searching through elaborate governmental websites, forming a nonprofit organization is probably not right for you.

We do not recommend that you form a nonprofit organization if your mission is to create a single skatepark. If you plan on fundraising for several skateparks, and provide funding for programming at those parks, over the next decade, then forming a nonprofit organization makes better sense.

Fiscal Sponsor

If forming a nonprofit organization is unnecessary or too complicated, you have lots of attractive options. Most skatepark advocacy groups choose to partner with an existing nonprofit organization instead of forming one themselves. This is known as a fiscal sponsorship, in that the “parent” organization is sponsoring your group by providing your group with the benefits of their nonprofit status. This allows you to receive donations and, more importantly, write receipts that the donor can then claim as tax-deductible donations. (You can receive donations without being a nonprofit or having a fiscal sponsor, but your donors cannot deduct the donation from their taxes.)

The terms “fiscal sponsor” and “fiscal sponsorship” denote a technical relationship. It’s not a casual agreement. A legitimate fiscal sponsorship will require your group, the “child organization,” to be a registered not-for-profit corporation. (You register your business through your state’s Secretary of State.) The sponsoring organization is sometimes called the “fiscal parent” or “parent organization.” This relationship usually comes at a cost to the child organization. Operating a nonprofit organization costs money, so the parent organization will typically charge the child organization a percentage of their fundraising to help cover overhead. A 5% fee on your fundraising receipts is a common amount. (3% is a pretty good deal for the child organization, while 8% is getting on the steep side.)

When you find your fiscal sponsor, you will want to discuss how your organizational relationship should be communicated to the public. For example, would you be allowed to “accept donations on behalf of the Boys & Girls Club for the Local Skatepark Project?” Some sponsors may be more or less comfortable with this expression, depending on the degree of controversy your skatepark project may be causing locally. Naturally, you should always reveal your local relationships when you are directly queried. There should never be anything to hide within the methods and structure of your group or its relationships and goals. Of course, your group may wish to not overtly reveal your fiscal sponsor if you feel that it somehow damages your group’s perceived integrity or their position on other controversial matters could disrupt your skatepark focus.

Find Your Fiscal Sponsor

Finding a local organization to sponsor your group’s fundraising campaign can be challenging. You should start looking for your fiscal sponsor once you begin your public advocacy effort.

A potential fiscal sponsor will have a similar mission as yours. It won’t be a specific match, but your skatepark mission should be able to be easily understood as an aspect of their mission. For example, an organization’s mission to “improve the local community through grassroots activism” can clearly include your mission to “improve the local community through the improvement of conditions for skateboarding.” A group’s mission to improve parks in general would be a good fit, but if their mission is to improve a specific park and that property isn’t where you intend to put the skatepark, that would not be a good fit.

It’s easier once you know where to look. A little research should produce some candidates. Here are some types of organizations that you may want to start with.

  • Parks Department
  • Parks foundation
  • Local community foundations
  • Fraternal organizations (Elks, Rotary, Masons, etc.)
  • Youth organizations (Boys & Girls Club, YMCA, etc.)
  • Community centers
  • Neighborhood development associations

You may be surprised to see Parks Department and the Parks foundation on this list. Parks foundations are independent fundraising organizations dedicated specifically to augmenting the city’s Parks Department. (All foundations are basically fundraising organizations dedicated to financially supporting special projects.) A parks foundation will be able to engage in fundraising programs for parks that the Parks Department, as a government organization, may be legally prohibited from engaging in. (That’s not to say that those fundraising efforts are illegal, but rather that a government agency is only allowed to ask the public for money in specific ways.)

Introduce yourself to the potential sponsor, outline your goals, and explain that you’re looking for a nonprofit organization to partner with. What you need, specifically, is an organization that will hold your collected funds until your fundraising goals are met. At the conclusion of your successful fundraising campaign, the sponsor will pass those funds on to the Parks Department or whatever agency is managing the skatepark design and construction process.

Your fiscal sponsor will be the recipient of the donation. So, if someone donates money in the form of a check, they will write it to “Town Rotary” with “skatepark fund” written in the memo field, for example. Your PayPal account will be set up by the sponsor as a designated fund. When you receive donations online, the PayPal account will be something like “Town Rotary Skatepark Fund.” Every donation you receive, or that your sponsor receives for the skatepark online, should be clearly designated for the skatepark. Nonprofit organizations that have experience acting as fiscal sponsors to smaller community fundraising groups like yours should have a clear system set up for managing a project like yours. If they don’t have experience in something like this, be cautious. A misunderstanding later about how much money is in your account could be a very unwelcome surprise.

Some fiscal sponsors will allow you to maintain your own bank account for the skatepark funds. They may even request it. When this happens, you will need to coordinate with the sponsor to create a new bank account. Determining who specifically can make changes to or withdraw funds from the account is important. This process will require coordination between your core group (or fundraising committee), your fiscal sponsor, and the bank agent.

There is a common misconception among beginning skatepark advocates that their group must form a nonprofit organization before it can engage in fundraising. Most advocacy groups find that they can raise the funds for the skatepark without being a recognized nonprofit organization.

All of your sponsorship agreements should be clearly documented in writing and reviewed by a trusted source with no affiliation to any of the agencies.