FISCAL SPONSORSHIP AGREEMENT DRAFTING PROMPT

You are an expert attorney specializing in nonprofit corporate law and fiscal sponsorship arrangements. Your task is to draft a comprehensive Fiscal Sponsorship Agreement that establishes a legally sound relationship between a tax-exempt fiscal sponsor organization and a sponsored project.

CONTEXT AND PURPOSE

Fiscal sponsorship is a formal arrangement in which a 501(c)(3) public charity (the fiscal sponsor) agrees to provide administrative, financial, and legal oversight for a project that lacks its own tax-exempt status. This agreement must balance the fiscal sponsor's need to maintain legal control and fiduciary responsibility over all funds and activities with the project's need for operational autonomy. The document must comply with IRS regulations, particularly ensuring that the fiscal sponsor retains ultimate discretion and control over sponsored funds to maintain its tax-exempt status.

AGREEMENT HEADER

Draft a formal agreement header that establishes the legal relationship between the parties. Begin with a clear, professional title such as "FISCAL SPONSORSHIP AGREEMENT" followed by the effective date of the agreement. Identify both parties with precision: the fiscal sponsor should be identified by its full legal name, state of incorporation, and confirmation of its 501(c)(3) status, while the project should be identified by its name and the individual(s) authorized to act on its behalf. The header should create immediate clarity about the nature of this relationship and the legal framework governing it.

RECITALS AND PROJECT PURPOSE

Compose detailed recitals that establish the legal and factual foundation for this agreement. The recitals should confirm that the fiscal sponsor is a tax-exempt organization under Internal Revenue Code Section 501(c)(3), describe the project's mission and how it aligns with the fiscal sponsor's charitable purposes, and explain the parties' intent to enter into this fiscal sponsorship relationship. Following the recitals, provide a comprehensive description of the project's purpose and planned activities, ensuring that all described activities fall within recognized charitable, educational, scientific, or other tax-exempt purposes. This section must demonstrate that the project's work furthers the fiscal sponsor's exempt mission and does not involve any substantial non-exempt purposes, political campaign activity, or excessive lobbying.

FISCAL SPONSOR RESPONSIBILITIES AND AUTHORITY

Articulate the fiscal sponsor's responsibilities and retained authority in a manner that clearly establishes its legal control over the project while acknowledging the practical working relationship. Explain that the fiscal sponsor will receive, deposit, and maintain all charitable contributions designated for the project in a restricted fund, maintaining separate accounting records that comply with generally accepted accounting principles. Detail the sponsor's obligation to provide timely written acknowledgment of contributions to donors as required by IRC Section 170, including appropriate substantiation for gifts over specified thresholds. Describe the process by which the fiscal sponsor will review and approve project expenditures, emphasizing that the sponsor retains ultimate discretion over all disbursements and must ensure that funds are used exclusively for charitable purposes consistent with its exempt status. Address the sponsor's right to exercise oversight of project activities, require periodic reporting, and ensure compliance with all applicable laws and regulations. Key retained authorities include:

• Final approval authority over all project budgets, expenditures, and financial decisions
• Right to modify or terminate project activities that conflict with the sponsor's mission or jeopardize its tax-exempt status
• Authority to ensure all project activities comply with applicable federal, state, and local laws

PROJECT RESPONSIBILITIES AND OPERATIONAL PARAMETERS

Define the project's responsibilities and operational parameters in a way that provides clarity about expectations while reinforcing the fiscal sponsor's ultimate authority. Explain that the project must conduct all activities in a manner consistent with the fiscal sponsor's tax-exempt purposes and must not engage in any activities that could jeopardize the sponsor's exempt status, including political campaign intervention, excessive lobbying, or private benefit transactions. Describe the project's obligation to submit detailed funding requests with appropriate documentation, including invoices, receipts, and explanations of how proposed expenditures further charitable purposes. Outline reporting requirements, specifying the frequency and content of financial reports, activity updates, and outcome assessments that the project must provide to the fiscal sponsor. Address the project's responsibility to raise funds necessary to support its budget, while clarifying that all fundraising materials and grant applications must be reviewed and approved by the fiscal sponsor. Establish that the project must comply with all fiscal sponsor policies, including those related to financial management, human resources, conflicts of interest, and risk management. Essential project obligations include:

• Submission of quarterly financial reports and annual narrative reports on project activities and outcomes
• Prior written approval from the fiscal sponsor before entering into any contracts, hiring employees, or making commitments exceeding specified thresholds
• Immediate notification to the fiscal sponsor of any potential legal issues, conflicts of interest, or circumstances that could affect the sponsor's tax-exempt status

FINANCIAL TERMS AND FUND MANAGEMENT

Establish clear financial terms that govern the economic relationship between the parties. Specify the administrative fee that the fiscal sponsor will retain from all contributions received for the project, typically expressed as a percentage of gross receipts, and explain what services this fee covers, such as accounting, tax compliance, insurance, legal oversight, and administrative support. Clearly state that all funds contributed for the project become the property of the fiscal sponsor and are subject to its exclusive legal control, though they will be maintained in a restricted fund and used to support the project's approved charitable activities. Address how the fiscal sponsor will handle different types of revenue, including individual donations, foundation grants, government contracts, and earned income, ensuring that all revenue is properly characterized and reported. Describe the process and timeline for fund disbursements, including any documentation requirements and approval thresholds. Clarify the fiscal sponsor's variance power—its right to redirect funds if the project's purposes become impossible, impractical, or inconsistent with charitable needs—which is essential for maintaining the deductibility of contributions under IRC Section 170.

TERM, RENEWAL, AND TERMINATION

Define the initial term of the agreement and the conditions under which it may be renewed or terminated. Specify whether the agreement is for a fixed term (such as one year) or continues indefinitely, and establish the process for renewal, including any required review periods or updated documentation. Detail the circumstances under which either party may terminate the agreement, including voluntary termination with advance written notice (typically 30 to 90 days) and termination for cause, such as material breach, failure to comply with sponsor policies, or engagement in activities that jeopardize the sponsor's exempt status. Critically important is the disposition of funds upon termination: clearly state that any remaining project funds held by the fiscal sponsor will remain the sponsor's property but will be granted to another 501(c)(3) organization with a similar charitable purpose, with the project having the right to recommend a recipient subject to the sponsor's approval. This provision protects the tax-deductibility of all contributions made during the sponsorship period. Address the return or disposition of any project assets, intellectual property, and records, ensuring that the fiscal sponsor retains copies of all financial records as required by law.

LEGAL RELATIONSHIP AND LIABILITY

Clarify the legal relationship between the parties and allocate responsibilities for liability and risk management. Explicitly state that the project and its personnel are not employees or agents of the fiscal sponsor for purposes of employment law, tax withholding, or benefits, unless specific individuals are formally hired as sponsor employees. Explain that the project operates under the fiscal sponsor's legal and tax status but that the sponsor is not liable for the project's contracts, torts, or other obligations unless the sponsor has specifically approved or guaranteed them in writing. Address insurance requirements, specifying what coverage the fiscal sponsor maintains (such as general liability and directors and officers insurance) and what additional coverage the project may be required to obtain. Include appropriate indemnification provisions that protect the fiscal sponsor from liability arising from the project's activities, while acknowledging that the sponsor retains ultimate responsibility for ensuring that project activities comply with law and further charitable purposes.

INTELLECTUAL PROPERTY AND WORK PRODUCT

Address ownership and use of intellectual property created during the sponsorship period. Specify whether materials, research, creative works, curricula, software, or other intellectual property developed by the project will be owned by the fiscal sponsor, the project, or shared between them. If the fiscal sponsor will own project-created intellectual property, address whether the project will retain any license to use such materials after the sponsorship ends. Clarify how the project may use the fiscal sponsor's name, logo, and tax-exempt status in fundraising and promotional materials, typically requiring prior written approval for each use. Establish guidelines for acknowledging the fiscal sponsorship relationship in publications, presentations, and other public communications.

COMPLIANCE, REPORTING, AND RECORD-KEEPING

Establish comprehensive compliance obligations and record-keeping requirements that enable the fiscal sponsor to meet its legal and fiduciary duties. Specify that the project must maintain detailed records of all activities and expenditures and must make such records available to the fiscal sponsor upon request. Describe the fiscal sponsor's right to conduct audits or reviews of project operations and finances. Address compliance with specific legal requirements applicable to the project's activities, such as human subjects research protocols, data privacy laws, employment regulations, or industry-specific licensing requirements. Require the project to notify the fiscal sponsor immediately of any governmental inquiries, legal proceedings, or other matters that could affect the sponsor's tax-exempt status or legal standing.

MISCELLANEOUS PROVISIONS

Include standard contractual provisions adapted to the fiscal sponsorship context. Specify that this agreement constitutes the entire understanding between the parties and supersedes all prior agreements or understandings, whether written or oral. Establish that any amendments must be in writing and signed by both parties. Identify the governing law (typically the state where the fiscal sponsor is incorporated) and the venue for resolving disputes. Include a severability clause providing that if any provision is found invalid or unenforceable, the remaining provisions continue in effect. Address whether either party may assign its rights or obligations under the agreement, typically prohibiting assignment without prior written consent. Include a notice provision specifying how formal communications must be delivered to each party.

SIGNATURE BLOCK

Conclude with a formal signature block that creates a legally binding agreement. Include a testimonium clause such as "IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above." Provide signature lines for authorized representatives of both the fiscal sponsor and the project, with spaces for printed names, titles, and dates. For the fiscal sponsor, ensure the signatory has appropriate authority (typically an executive director, board chair, or other authorized officer). For the project, identify the individual(s) authorized to bind the project to this agreement. Consider whether the agreement requires board approval from either party and, if so, include appropriate attestation.

DRAFTING INSTRUCTIONS

Draft this agreement in clear, professional legal language appropriate for a binding contract between sophisticated parties. Use complete sentences and well-structured paragraphs rather than excessive bullet points. Maintain a formal but accessible tone that non-lawyers can understand while preserving legal precision. Number all sections and subsections for easy reference. Include all necessary legal provisions while avoiding unnecessary complexity or boilerplate that does not serve the specific purposes of a fiscal sponsorship arrangement. Ensure that every provision reinforces the fundamental legal reality that the fiscal sponsor retains ultimate control and discretion over sponsored funds and activities, as this is essential for maintaining tax-exempt status and the deductibility of contributions. The final document should be comprehensive enough to govern the relationship and protect both parties while being clear enough to facilitate a productive working partnership.