We generally focus solely on donor advised funds here at DAFinitively Speaking. That said, there are an increasing number of ways that philanthropists collaborate to tackle tough problems using DAFs in combination with other resources. This month we wanted to talk about the increasing opportunities via fiscal sponsorships (FSP Restricted Funds). They look very similar to DAFs, and if you’re not familiar with them, read on.
As referenced in this Council of Nonprofits article, “a fiscal sponsor is a nonprofit organization that provides fiduciary oversight, financial management, and other administrative services to help build the capacity of charitable projects.”
The concept of fiscal sponsorship allows donors with a specific goal in mind to access fundraising resources, proper accounting and tax recordkeeping, in a community of likeminded social entrepreneurs. The Council of Nonprofits notes that fiscal sponsorship is an option for newly formed nonprofits who need resources in their early years. Donors can contribute to these funds just like any other charitable cause.
United Charitable (UC) is one of the sponsors of these funds and explains the program in a helpful video.
And UC is not alone: Several other sponsors also offer both DAFs and access to fiscal sponsorship including FJC, UI Charitable Advisors and the Edward Charles Foundation. Others include SocialGood and RealImpact.
Some sponsors, like Mission Edge, focus solely on fiscal sponsorship.
A truly comprehensive post by Candid gives further information on how philanthropic investors establish an FSP and how to best promote their projects. FiscalSponsorDirectory.org offers a list of sponsors across the country with detailed information on funding requirements, organization information and the types of projects that each sponsor supports.
Fiscal sponsorship can overlap with DAF regulations in ways that make both seem quite similar. How do the two compare?
The Nonprofit Law Blog wrote about the topic in 2024 and noted that sometimes fiscal sponsorships can fall within the same parameters as a donor advised fund. The US Department of Treasury released proposed regulations for DAFs in November 2023; it remains to be seen if these regulations will be finalized under the new administration.
However, if these regulations become law, there are three prongs of the definition of a fund which may be met by both DAFs and FSPs.
- Separately Identified: per the regulations, a DAF must “be separately identified by reference to contributions of a donor or donors.” Essentially, Fidelity Charitable or Schwab Charitable are separate from the Jane Doe Fund, a DAF that they sponsor. The Nonprofit Law Blog notes that a FSP Restricted Fund could meet the definition of a DAF even if the donors are not related, because they may be on a committee advising a mutually important issue.
- Owned and Controlled: The blog notes that FSPs, as they are owned and controlled by a fiscal sponsor, meet this requirement.
- Advisory Privileges as a Donor: In both DAFs and FSPs, a person is given advisory privileges to oversee the distribution of the funds’ assets. Although a DAF advisor is typically a donor, their designated advisor, or the board of the sponsor, the language in the proposed regulations may also be broad enough to include an FSP, per the blog. “The donors to the fund have implicitly designated the advisor to have advisory privileges,” says the proposal. The authors of the blog believe that this could hypothetically make that FSP a DAF.
The Mill Law Center, a practice that works exclusively with the nonprofit sector, also touched upon this topic last year, but argued that the proposed regulations are so broad that other restricted funds will have to be explicit in their work so as not to be considered a DAF. Some of their suggestions include:
- A sponsorship’s projects should predate its donor base.
- Project managers and committee members should be employees.
- Avoid gifts to individuals outside of scholarship or disaster funds, as DAFs do not grant to individual recipients.
- For similar reasons, the author suggests that funds should avoid transactions with donors related to donors or advisors of the FSP.
- Make sure that gift agreement language includes phrases such as the following:
- “Thanks for your gift of $_____________ on [Date] to [Name of Sponsor] for the purposes of the [Name of Project]. No goods or services were provided in exchange for this contribution. Furthermore, we are confirming that this gift does not create any “advisory privilege,” either for you or anyone designated by you, and our restricted fund for the [Name of Project] is not a “donor-advised fund,” as those terms are used in Internal Revenue Code Section 4966. Please note that [Name of Sponsor] retains exclusive legal control over all contributed fund.”
Here at DAFinitive® we think it is always beneficial to know more about DAFs and other closely-related options that are available to donors in the philanthropic landscape. If there are other vehicles that you’re interested in our exploring here on DAFinitively Speaking, email us at hello@DAFinitive.com!
