Can We Receive Tax-Exempt Contributions When We Are So Tiny?

Question: Can We Receive Tax-Exempt Contributions When We Are So Tiny?

We are a new and tiny organization and want to be able to apply for grants or to solicit contributions that are tax-exempt. Do we have to go through the complexities of setting up as a nonprofit and getting tax-exempt status?

Answer: Here are two things you can do instead of becoming a registered, tax-exempt nonprofit:

Explore Fiscal Sponsorship

Fiscal sponsorship allows a group that does not have tax-exempt status to partner with an organization that does have tax-exempt status. Through the partnership, the sponsored group can apply for and receive grants, and solicit tax-deductible contributions. The money goes through the sponsoring organization.

This may be a good solution for a small organization that does not yet have the resources to set up its own nonprofit; or for groups that are seeking funds for a temporary purpose or project.

Fiscal sponsorship requires a formal agreement between sponsor and sponsored. Some sponsors charge a fee for this service.

Best Bet: Find a lawyer who specializes in this sort of arrangement, or at least read up on how to do it properly. A good resource is Fiscal Sponsorship, 6 Ways to Do It Right, by Gregory Colvin

Consider A Nonprofit Incubator

Incubators are usually facilities that help small nonprofits share resources as low-cost means to getting started. For start-up organizations with few resources, an incubator might work well. The incubator may provide fiscal sponsorship so that you can solicit tax-exempt donations.

Best Bet: You may have a nonprofit incubator in your community. Locate your state office of the National Council of Nonprofit Associations to find out.