FISCAL SPONSORSHIP HANDBOOK Guidance to Obtaining and Maintaining Fiscal Sponsorship under Stoa USA
Copyright 2012 by the Stoa USA Board
TABLE OF CONTENTS About Stoa USA...........................................................................................................1 Why Fiscal Sponsorship?..............................................................................................2 What is Fiscal Sponsorship?..........................................................................................4 Qualification for Fiscal Sponsorship.............................................................................6 6 Step Process..............................................................................................................8 Cover Letter - Your Application.................................................................................10 Preparing the Budget - What Items Will Be Approved?..............................................11 Sample Grant Agreement...........................................................................................14 Sample Letter to Donors from Stoa USA...................................................................18 Why Incorporate?......................................................................................................19 Comparative Chart of Organizational Form...............................................................20 Frequently Asked Questions.......................................................................................21
Nothing in this document should be taken as comprehensive tax or legal advice. The information provided was intended as summary guidance for local clubs and organizations associated with Stoa USA, but you should pursue any technical questions pertaining to your specific situation with a qualified professional.
ABOUT STOA USA Mission & Activities Stoa USA is a national Junior High and High School Speech and Debate League serving the needs of Christian Homeschooling families. Its mission is to train Christian homeschooled youth in speech and debate in order to better communicate a Biblical worldview. In support of this mission, Stoa USA helps facilitate numerous speech and debate tournaments involving students from a growing number of states throughout the nation. Stoa USA provides support and training to associated clubs and their leaders.
Vision for Future Stoa USA is interested in encouraging the Since 2009, Stoa USA has been participation of as many local clubs and formed as a religious corporation in organizations as possible in Stoa tournaments the State of California. In 2010, the and activities. Consequently, the Board of organization was recognized by the Directors has been aggressively pursuing Internal Revenue Service as a tax avenues to help organizations get off the exempt § 501(c)(3) public ground and/or use their funding and resources charity, and has remained so more effectively. in good standing. Currently, Stoa USA offers its members the opportunity to 1) raise funds and receive grants through the Fiscal Sponsorship program, 2) participate in the Group Exemption program which enables local clubs to acquire their own § 501(c)(3) tax exempt status with relative ease, and 3) participate in an Insurance program for tournaments and other Stoa-related events around the country. 1
WHY FISCAL SPONSORSHIP? The Problem Your organization may be like the many relatively small local clubs and regional organizations that up to this point have been operating on a very informal basis, financially and organizationally, i.e. not formally organized in a corporate form or even as an unincorporated association. Typically, a separate tax ID number has not been established for the group. Keeping things simple, since not much money is involved, a private bank account may have been used when needed. Naturally the speech and debate activities are the focus of most efforts expended.
The Reality If an organization is collecting funds into a personal bank account, it is a legal requirement that all such deposits are tracked and reported to the IRS as income. You may or may not be able to offset all this income with the expenses for the club or event by the end of your fiscal year (especially if you default to the typical calendar year reporting, which is more likely to cause this issue than a school-aligned fiscal year). If not, you may owe a tax bill on that income. Any money deposited not reported as income would raise serious questions in the event of an IRS audit. Even if you all the income were offset by expenses incurred, there may be difficulties in providing documentation of every expense item – particularly if the audit is three years down the road. More serious fact patterns may potentially involve accusations of tax evasion. In any case, deposits not offset by expenses would be subject to income tax. Since a project may be organized under an individual’s name, there is no organization to shield that individual from liability. Thus, in addition to the tax reporting requirement, the organizing individual may be exposed to unlimited personal liability. To be clear: unlimited liability means that a single lawsuit can put all one’s earthly possessions at risk. Lastly, none of the donations of cash or non-cash goods contributed to an informally organization or for an event will be tax deductible to any of the donors since an individual is not tax exempt nor is the organization tax exempt. The volunteers also cannot deduct for their out-of-pocket expenses on behalf of the organization.
WHY FISCAL SPONSORSHIP? (CONT.) A Non-Solution Use of the the FEIN (federal employer identification number) of another tax exempt organization is not an acceptable option. Such use is illegal. For example, if Stoa USA is not running a club or tournament, use of the Stoa USA FEIN to raise funds or avoid sales taxes, etc. would not be acceptable. Doing so could subject Stoa USA to any liability surrounding the event/activity you were hosting due to the appearance that the club/project is an arm of Stoa USA.
Possible Solutions The Board of Stoa USA has been intent on finding solutions to help local organizations benefit from Stoa USA’s tax exempt status and on getting information to Stoa members around the country on how to best manage their organizations and events in a way that is both legal and efficient.
If an organization is ready to become a full fledged § 501(c)(3) tax exempt public charity, it may be beneficial to that organization to participate in Stoa USA’s program; by becoming an Associate of Stoa USA the organization would benefit from Stoa USA’s exempt status. In this program, Stoa USA serves as the central organization and the Associates gain exemption by their affiliation with Stoa USA. This process is more fully explained in the sister pamphlet to this one called the “Group Exemption - Associate Handbook.”
For a club or organization that is new and is not yet ready to establish itself as a § 501(c)(3) tax exempt organization, it may be beneficial to establish a relationship with another Christian speech and debate organization that currently has recognition as a tax exempt organization, such as Stoa USA. The remainder of this Handbook will explain the process of participating in the Fiscal Sponsorship program.
WHY FISCAL SPONSORSHIP? (CONT.) The Benefits The primary benefits of our Fiscal Sponsorship program are as follows: · Tax deduction for your cash and non-cash donors · Tax deduction for your volunteers to cover their out-of-pocket expenses · Ability to work with your sponsor to meter out how much grant money you receive in your fiscal year to ensure that you have offsetting expenses for that time period, resulting in little or no tax liability for the year. As stated previously, the failure of a non-exempt organization to balance income with corresponding expenses could result in a tax liability · Opportunity to become properly organized and enjoy a period of incubation which can make a more natural transition if the organization decides to pursue Group Exemption · Support/connections with the Stoa USA staff and Board that are interested in your success · Ability to pursue grants from other nonprofits, churches, and foundations · As compared with maintaining your own independent tax exemption, Fiscal Sponsorship means that any large donation sent through Stoa USA will not throw off the “public support” formula (requiring a showing of a diversity of donors) that tax exempt entities are required to maintain or risk being reclassified as a private foundation
WHAT IS FISCAL SPONSORSHIP? Legal Control One common method of “Fiscal Sponsorship” that utilizes a Grant Agreement enables an exempt organization to collect donations on the behalf of a non-exempt organization. For our purposes, the exempt organization would be Stoa USA and the non-exempt organization would be your local club or regional organization. This Fiscal Sponsorship arrangement requires Stoa USA to collect the funds in its own name, then distribute the funding in the form of grants to the your local club or organization.
This is not simply a conduit arrangement whereby one organization funnels money through another. In fact if this were the case, the tax exempt status of Stoa USA would be endangered, as well as the deductibility of contributions by donors. To avoid the appearance of a conduit arrangement, Stoa USA must carefully exercise expenditure responsibility. Expenditure responsibility is the obl gation that an exempt organization has to ensure that charity dollars are spent for charitable purposes when distributed to a non-exempt organization. Because the clubs are not overseen by the IRS to ensure that they conduct exempt programming, it falls to the exempt granting organization to make sure its grants are spent properly.
Therefore throughout the process, Stoa USA is required to exercise “discretion and control” over the funds. This means Stoa USA must retain the right to withhold distributions to – or even recover disbursements from – the non-exempt organization if the former feels the latter’s programming does not fall within the guidelines for exempt activity. Throughout a Fiscal Sponsorship relationship, non-exempt organizations must never raise funds in their own names while claiming the exempt status of Stoa USA and depositing the funds directly into their own accounts. Stoa USA would not have sufficient discretion or control in that situation.
WHAT IS FISCAL SPONSORSHIP? (CONT.) How it works When this relationship is formed, your donors will be able to give tax deductible gifts to Stoa USA for your fund. Remember, however, that Stoa USA must have “discretion and control” over that funding at all times - even if that funding was raised with you as the intended beneficiary - and can choose to distribute it elsewhere if your club ceases to conduct exempt activities or begins conducting activities not permitted by a § 501(c)(3) (such as political activities, e.g.). Stoa USA can even require you to return part or all of the grant if used improperly. Although this scenario is not anticipated, it is the legal requirement for a properly established Fiscal Sponsorship relationship. It must not appear to the IRS that Stoa USA is merely a conduit between the donors and your club.
How it is Established To establish a Fiscal Sponsorship relationship, your organization must send a cover letter to the Board of Stoa USA, describing your exempt activities and request funding through Stoa USA. The Board of Stoa USA will evaluate your proposal, and, if they choose to fund you, both organizations will sign a “Grant Agreement.” This will establish a kind of pre-approved grant so that Stoa USA can collect donations into a fund designated for your local club and distribute them to you without the need for a new proposal each time funds are granted to you.
What it Costs There is an initial application fee of $250 for the cost of reviewing the application and preparing the necessary legal documents. Thereafter, there would be a percentage-based administration fee for the handling and distribution of funds. The administrative fee would be 5% which would be retained by what is collected. The remaining 95% would generally all be granted to your organization, under the provisions described above. If you were to make a comparative study, you would discover that many fiscal sponsors charge a much higher rate. The Board of Stoa USA has worked hard to make this fiscal option feasible.
Not Conferring Tax Exemption So to be clear: The Fiscal Sponsorship model does not provide the organizations with their own tax exemption; Stoa USA is the only organization that would have that. Nor would this arrangement provide participating organizations with access to local exemption benefits such as state income and sales tax exemptions (with few exceptions). Group Exemption is necessary to obtain these benefits. 6
QUALIFICATIONS FOR SPONSORSHIP The following is a list of qualifications to establish a Fiscal Sponsorship relationship with Stoa USA:
Proper Charitable Purpose The primary exempt purpose for which Stoa USA is formed is to promote Christian speech and debate. In furtherance of such purpose, Stoa USA may grant funding to other organizations that exist to promote a substantially similar purpose.
Corporation or Unincorporated Association The preference of Stoa USA is that each organization establishing a Fiscal Sponsorship relationship with Stoa USA be incorporated. As explained on Page 20, a corporate form is advantageous for many reasons. However, it is possible to create a Fiscal Sponsorship with an organization that is not incorporated. Either way, the organization must be able to provide Stoa USA with Articles of Organization. If the organization is incorporated, this will be called Articles of Incorporation. If the organization is unincorporated, this will be called Articles of Association.
Federal Employer Identification Number (FEIN) After your organization is officially “organized” (aka formed as a Corporation or an Unincorporated Association with Articles of Association), you can apply to the IRS for your Federal Employer Identification Number (FEIN). This is required regardless of whether you will be having employees. This is the number that identifies you as an entity. (This number does not confer any other benefits, nor does it say anything about your tax exempt status.) You can obtain this FEIN in a single session by going to the IRS website (www.irs.gov). You will need the social security number of one person to set this up (but that SSN will not be used for any other purpose in the future).
Bank Account Your organization will need its own bank account to establish a Fiscal Sponsorship with Stoa USA. A personal bank account will not be sufficient and cannot be used to receive charitable grants from Stoa USA. Upon obtaining a FEIN letter from the IRS, you should be able to take that letter to the bank, along with your Articles of Organization and perhaps a board resolution authorizing a designated individual(s) to open a bank account, and open an account on behalf of your club or organization. 7
QUALIFICATIONS FOR SPONSORSHIP (CONT.) Statement of Faith All the officers and leadership of any participating club or organization must agree to and sign their name to the Stoa USA Statement of Faith, as shown below. 1. There is one God eternally existing in three persons: the Father, the Son (Jesus Christ), and the Holy Spirit. (Matthew 3:16, Matthew 28:19, John 10:30, 2 Corinthians 13:14) 2. Man is sinful and therefore separated from God, who is holy and perfect. (Isaiah 53:5-9, Romans 3:23, I Peter 1:15-16) 3. Jesus Christ paid the eternal penalties for our sin through His death on the cross. (Luke 24:46, I Peter 2:21) 4. Jesus Christ also resurrected bodily and ascended into heaven and will return one day to fulfill His kingdom. (Matthew 28:6, Revelation 19:11) 5. Only through Jesus Christ and the grace of His provision of salvation, may we be saved from eternal punishment, enter into God’s family and receive eternal life. (Ephesians 2:8-9, Romans 6:23, Romans 8:11, I John 1:9)
If you need assistance with any of these qualification items, Stoa USA staff can refer you to Stoa USA’s Board Counsel for advice. Any ensuing fee arrangement will be between your organization and the attorney. Stoa USA will not be responsible for this expense.
THE PROCESS – 6 STEPS Step 1 - Application The organization provides Stoa USA with a written grant request, describing how the potential funding would be used. (See Page 11 for guidance in preparing this application.) The cost for this initial application is a one time fee of $250.
Step 2 - Evaluation The Stoa USA Board evaluates the request and makes a documented determination whether your organization’s activity/project 1) is an exempt activity and 2) whether if furthers Stoa USA’s purposes. The Stoa USA Board documents the amount approved for the grant, whether it is a flat rate or is to be based upon the funding received for that project.
Step 3 - Agreement Both Stoa USA and your organization sign a written grant agreement (See Sample Grant Agreement on Page 15) which lays out the terms and conditions of your relationship. It will be a document of general terms but will refer to an external document (in this case, the application cover letter your organization submitted) which would lay out the specific activities for which the grant will be used. Once this pre-approved grant agreement is in place, it may continue to serve as the legal organ for grant requests from your organization in the future.
THE PROCESS – 6 STEPS (CONT.) Step 4 - Administration of Funds During the collection of funds by Stoa USA as the sponsor, complete discretion and control over such funds is maintained by Stoa USA. The funds are handled by Stoa USA at all times. This policy should be recorded and communicated in writing to the donors. Any marketing material for the fundraising/tournament promotion should include Stoa USA’s name and logo. (Stoa USA will also deduct an administrative fee from the collected funds, which is included in the grant agreement for mutual understanding.)
Step 5 - Disbursements Subject to the terms of the signed grant agreement, disbursements are made to your organization.
Step 6 - Reporting Subject to the terms of the signed grant agreement, your organization makes periodic written reports accounting for your use of the grant funding. Your organization also gives prompt updates on any significant changes to your plans not reflected in your cover letter.
The Board of Directors reviews each application for fiscal sponsorship. The typical turnaround time between receiving the application and signing a Grant Agreement is about one month. However each application is handled on a case by case basis, and if there is a need to expedite, there may be room for flexibility.
COVER LETTER - YOUR APPLICATION The following is a set of guidelines to be observed for your cover letter requesting grant funding through a fiscal sponsorship relationship with Stoa USA. Ÿ Ÿ Ÿ
Use the letterhead of your organization. Address your letter to the Board of Stoa USA. In the body of your letter, provide a brief history of your organization’s existence.
Describe your current activities and the plans you have for future activities. If there are any significant foreseeable changes to your activities, describe them here. Provide a basic budget for the past year’s income and expenses and a projection for the current year. See Page 12 for some guidance on this. Identify the start date of your fiscal year. It would probably be wise for you to follow Stoa USA’s example of August 1 to July 31 so that you can maximize your grant in correlation with the school year. Please restrict the length of the cover letter to 1-2 pages. The cover letter should be signed by the highest ranking officer in your organization.
· Fill out forms/reports completely & answer the questions actually being asked · Carefully keep track of all your receipts and records · Be aware of impending deadlines and funding needs. We are not always able to fill last minute requests · Make sure all donation checks are made out to Stoa USA instead of your organization. Your name should be in the memo line · Stay in touch – let us know what you are planning to do and any changes 11
· Grant money from your fund to another entity · Use contributed funds for anything outside your stated project/purpose · Use Stoa USA’s name to register for any services or accounts · Use Stoa USA’s FEIN or Tax Exemption Certificate for any purpose without our knowledge or consent
PREPARING THE BUDGET What kind of things can we spend our organization’s grant money on? Our tax code requires a tax exempt § 501(c)(3) organization to be operated exclusively for “charitable purposes.” Part of the meaning of “operating” for charitable purposes is restricting the use of tax exempt dollars to charitable purposes only. Therefore, since Stoa USA is a § 501(c)(3) tax exempt organization, when it raises funds and makes grants to another organization, that money must be used by that organization for charitable purposes.
What is considered a “charitable purpose”? The IRS intentionally does not attempt to define this completely for organizations. Neither the IRS nor Stoa USA would want the guidelines to be exhaustive, leaving no room for innovative ideas. The question is one that must be analyzed based on the guidance from historical case law and other clues found in IRS publications, etc. As stated in the Internal Revenue Code Regulations, “Charitable purposes” include religious and educational purposes, such as the purpose of Stoa USA in its promotion of Christian speech and debate. Therefore the expenses incurred in the process of promoting Christian speech and debate would be considered as spent for “charitable purposes.”
Questions about a particular budget item or how to handle compensation matters should be posed to Stoa USA earlier rather than later to be sure that Stoa USA will approve of the item. If the Stoa USA staff is unable to offer advice, the question may be referred to the Stoa USA Board Counsel.
PREPARING THE BUDGET (CONT.) Examples of items furthering charitable purposes:
Facilities / utilities Materials (ballots, signs, balloons, etc.) Equipment (computers, printers, etc.) Hospitality (food, coffee, etc.) Awards (trophies, prizes, etc.) Travel to speech & debate events (minus any portion of trip spent for pleasure or personal reasons) · Registration fees for speech & debate events · Gifts to Volunteers (cash or noncash)*
· Facilities / utilities · Curriculum Materials · Office Expenses (computers, printing, copying, software, etc.) · Leadership and student travel expenses for speech and debate events (minus any portion of trip spent for pleasure or personal reasons) · Insurance · Club/organization parties with food and decorations · Educational/training camps · Awards within clubs · Trainer Stipend · Salaries for Coaches
· · · · · ·
Organizations should be aware that certain gifts to volunteers may be viewed by the IRS as taxable compensation and should be handled accordingly. This is especially true of cash-like gifts, such as gift cards. As recently as 2004, a Technical Advisory Memo stated that a $35 grocery store coupon was taxable income and did not qualify as a de minimus gift to be excluded from income. This reality has implications for both the organization and recipient. Organizations should also be aware of the reporting rules which require them to issue a Form 1099 to any individual who received $600 or more in compensation from them during the course of any given year.
PREPARING THE BUDGET (CONT.) Examples of non-charitable purposes: It may be also helpful to consider what is not considered a tax exempt purpose. · Private Benefit – Individuals cannot be improperly benefited by a tax exempt organization. If an organization was using its funding to purchase items for one of its members’ personal use (rather than an organizational use), this would be an impermissible private benefit, which can have many undesirable consequences for the organization, the individual, and the leaders who made the decision to allow it. Sometimes an expense for dual purposes (organizational business and personal) must be declared and handled as such. · Beyond the Scope – Clubs and organizations cannot zigzag from purpose to purpose. The purpose of Stoa USA and its associated organizations and clubs is Christian speech and debate. Therefore, the clubs cannot use money designated for these purposes to serve unrelated purposes. For example, tax exempt dollars should not be used to feed the homeless because that purpose (albeit charitable) is not what Stoa has been approved to do.
Federal tax rules prohibit tax exempt charities and churches from promoting any political candidate for office. If a candidate is invited to speak to an organization, it must be done within the parameters of IRS guidance. If assistance is needed in this matter, ask a tax professional or have the Stoa USA staff refer to you to the Board Counsel.
· Lobbying/ Campaigning – Stay far away from this activity unless professional guidance has been obtained on the matter. No Project or Associate of Stoa USA is permitted to engage in these political activities. If you are independent of Stoa USA, you should still proceed with (informed) caution in this area. · Unrelated Business Activity – Charitable organizations can lose their tax exempt status if they engage in too much unrelated business activity (UBI). UBI includes things like selling items (unrelated to speech and debate) to raise funds for your organization. You may engage in a little of this, but if an organizations begins to look like it is competing with for-profit counterparts, the IRS considers this unfair to the competition. Even if the UBI is kept in check, the organization may owe taxes on income from UBI if more than $1,000 is raised in any given year. Consult a professional before engaging in this activity. There are many nuances to these rules. 14
SAMPLE GRANT AGREEMENT On the ______ day of ________________________, 20_____, (“ ”) decided that financial support of the project described in the cover letter accompanying this Agreement will further Grantor’s tax-exempt purposes. Therefore, Grantor has created a restricted fund designated for such project, and has decided to grant all amounts that it may deposit to that fund, less any administrative charge as set forth below, to _______________________________________________ (“ ”), subject to the following Terms and Conditions: – . Grantee shall provide Grantor with its governing documents, a completed and filed IRS Form SS-4, or other documentation satisfactory to the Grantor, showing Grantee’s separate existence as an organization. – Grantee shall use the grant solely for the project described in the accompanying cover letter, and Grantee shall repay to Grantor any portion of the amount granted which is not used for that project. Any changes in the purposes for which grant funds are spent must be approved in writing by Grantor before implementation. – If Grantee breaches this Agreement, including but not limited to failure to submit reports when due, or if Grantee’s conduct of the project jeopardizes Grantor’s legal or tax status or conflicts with the Grantor’s core values as a Christian organization, Grantor retains the right, to withhold, withdraw, or demand immediate return of grant funds, to terminate the Agreement, and to spend such funds so as to accomplish the purposes of the project as nearly as possible within Grantor’s sole judgment, as determined by a majority vote of its Board of Directors. – Any tangible or intangible property, including copyrights, obtained or created by Grantee as part of this project shall remain the property of Grantee. – Grantee may solicit gifts, contributions, and grants to Grantor, earmarked for Grantor’s restricted fund for this project. Grantee’s choice of funding sources to be approached and the text of Grantee’s fundraising materials are subject to Grantor’s prior written approval. All grant agreements, pledges, or other commitments with funding sources to support this project via Grantor’s restricted fund shall be executed by Grantor. The cost of any reports or other compliance measures required by such funding sources shall be borne by Grantee. 15
SAMPLE GRANT AGREEMENT (CONT.) – An administrative charge of five percent (5%) of all amounts paid to Grantee from the restricted fund shall be deducted by Grantor to defray Grantor’s costs of administering the restricted fund and this grant. In addition, administrative costs to be paid from the restricted fund shall include any out-of-pocket compliance costs related to the Project, such as legal, accounting, audit work, and any reports or other measures required by funding sources. Any interest earned on the restricted fund shall be retained in Grantor’s general fund. – Nothing in this Agreement shall constitute the naming of Grantee as an agent or legal representative of Grantor for any purpose whatsoever except as specifically and to the extent set forth herein. This Agreement shall not be deemed to create any relationship of agency, partnership, or joint venture between the parties hereto, and Grantee shall make no such representation to anyone. – Grantee shall submit a full and complete report to Grantor as of the end of Grantee’s annual accounting period within which any portion of this grant is received or spent. The initial report shall be submitted by Grantee no later than _____________________________, 20_____, and subsequent reports, if any, shall be due on the anniversary date of the initial report. The report shall describe the charitable programs conducted by the Grantee with the aid of this grant and the expenditures made with grant funds, and shall report on the Grantee’s compliance with the Terms and Conditions of this grant. The documentation to accompany report shall include copies of receipts, invoices, checks, etc. for expenditures. – The Grantor shall distribute funds in the following manner: As donated funds clear the bank, 90% of money remaining after deduction of all fees referenced in Section Six above will be available for disbursement to the Grantee to be used in the manner described in the approved activities of the cover letter. The remainder of the funds will be disbursed after the Grantor receives a complete report from Grantee as described in Section Eight above. – This grant is not to be used in any attempt to influence legislation within the meaning of Internal Revenue Code (IRC) § 501(c)(3). No agreement, oral or written, to that effect has been made between Grantor and Grantee.
SAMPLE GRANT AGREEMENT (CONT.) – Grantee shall not use any portion of the funds granted herein to participate or intervene in any political campaign on behalf of or in opposition to any candidate for public office, to induce or encourage violations of law or public policy, to cause any private inurement or improper private benefit to occur, nor to take any other action inconsistent with IRC § 501(c)(3). – Grantee shall notify Grantor immediately of any change in 1) Grantee’s legal or tax status, or 2) Grantee’s executive or key staff responsible for achieving the grant purposes. – Grantee hereby irrevocably and unconditionally agrees, to the fullest extent permitted by law, to defend, indemnify, and hold harmless Grantor, its officers, directors, trustees, employees, and agents, from and against any and all claims, liabilities, losses, and expenses (including reasonable attorneys’ fees) directly, indirectly, wholly, or partially arising from or in connection with any act or omission of Grantee, its employees or agents, in applying for or accepting the grant, in expending or applying the funds furnished pursuant to the grant, or in carrying out the program or project to be funded or financed by the grant, except to the extent that such claims, liabilities, losses, or expenses arise from or in connection with any act or omission of Grantor, its officers, directors, trustees, employees, or agents. – In the event of a future dispute between the parties, the parties agree to attempt in good faith to resolve the dispute through binding arbitration using the services of a Christian arbitrator who is mutually acceptable to Grantor and Grantee. – This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to agreements made and to be performed entirely within such State. – This Agreement shall supersede any prior oral or written understandings or communications between the parties and constitutes the entire agreement of the parties with respect to the subject matter hereof. This Agreement may not be amended or modified, except in a writing signed by both parties hereto.
SAMPLE GRANT AGREEMENT (CONT.) – If any provision of this Agreement shall be declared or held invalid, illegal, or unenforceable in any respect, such provision shall be given the maximum effect permitted under applicable law and be replaced with a valid and enforceable provision that most closely reflects the intention of the parties. Such invalidity, illegality, or unenforceability shall not affect any other provision in this Agreement, which shall remain in effect and enforceable. IN WITNESS WHEREOF, the parties have executed this Grant Agreement effective on the ______ day of ________________________, 20_____.
Stoa USA _____________ GRANTOR ORGANIZATION
____________________________ _____ GRANTEE ORGANIZATION
SAMPLE LETTER TO DONOR FROM STOA USA [date] ________________________ ________________________ ________________________
Dear Prospective Donor: This letter is to confirm to you that Stoa USA is the fiscal sponsor of ______________________’s charitable speech and debate program. As such, we have reviewed and have extended our support towards the projects and activities described in the enclosed materials. We have established a restricted fund to receive and maintain financial support from donors to be distributed to ______________________ to support these projects and activities. Stoa USA is a California nonprofit public benefit corporation qualified as exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code (IRC) and classified as a public charity under IRC Sections 509(a)(1) and 170(b)(1)(A)(vi). A copy of our federal determination letter has been included for your convenience. As of this date we have received no notice from the Internal Revenue Service that our status has been changed. Therefore all charitable contributions made to our organization are tax deductible to the donor in accordance with the IRC. For legal and accounting purposes, we need to notify you of our “variance power” over funds donated to us in support of this program. Under our fiscal sponsorship agreement with ______________________, Stoa USA retains full discretion and control over the use of such funds to accomplish the charitable purposes of the approved program. This power includes the unilateral right to redirect funds to a different beneficiary who can accomplish the purposes of this program if for some reason ______________________ cannot. Please feel free to call me at ______________________ if you have any questions. Thank you for your interest in one of our projects. Sincerely,
WHY INCORPORATE? Unincorporated Association vs. Corporation The biggest difference between the organizational forms is the unlimited liability that is present for an unincorporated association. Having a corporate form means that if the organization is sued, only the corporate assets are vulnerable to a judgment. The corporation takes on a life of its own and is seen as an individual in the eyes of the law. It can transact business, hold property and assets, and bring an action in its own name. An unincorporated organization is not a separate entity and generally cannot engage in these activities; it is simply a collection of individuals engaged in some common interest and task.
While it is true that a corporate form requires certain formalities that must be observed, the benefits of risk reduction are so significant that many organizations have found that leaders, employees, and even volunteers regularly consider incorporation to be a minimum standard of protection before they will get involved and begin serving the organization.
In a limited number of states, unincorporated associations can enter into contracts and own property, but this is not universally true. Unincorporated associations are a common law concept. There is much less case law and code available to direct how an unincorporated association ought to act, especially when compared to corporations. Courts are much more comfortable and familiar with the corporate form. Most importantly, when an unincorporated entity such as an informal association or sole proprietorship is sued, the plaintiff can reach for all the personal assets of the association members or owner of the business. For example, if your organization hosts an event and an issue develops with a vender, that vendor may go after the individual that did business with him or the group of individuals that make up the club that did business with him. Additionally, speech and debate events carry certain special risks because they are held in relatively public places and deal with so many people, many of which are minors. There are many fronts on which liabilities could present themselves.
FREQUENTLY ASKED QUESTIONS No. A key advantage of Stoa USA’s tax exempt status to you is that all donations, contributions, and grants received on your behalf for your project are tax deductible to the donors, contributors, and grantors. Any income received by the organization must be accounted for based on your own status. Note, however, the process is designed so that the expenses of your project offset the income to your organization, resulting in little or no tax burden.
Yes, probably. You are responsible for reporting all income, including money received through Fiscal Sponsorship, to the IRS. If you have been diligently keeping track of the money received and spent on project related expenses, you ideally shouldn't owe any taxes on the money we send you, except for what you may owe on your project-related salary. However, we cannot guarantee that you will have no tax liability. You must speak to your own tax advisor to discuss your personal circumstances and any specific tax questions. While we do our best to offer general guidance, our organization is not qualified to answer specific tax related questions.
There is an initial application fee of $250 for the cost of reviewing the application and preparing the necessary legal documents. Thereafter there is an ongoing 5% administrative fee for all donations handled through the restricted fund of the sponsorship. As stated in the Grant Agreement, there may also be costs deducted from the restricted fund for any out-ofpocket compliance costs related to the project sponsored, such as legal, accounting, audit work, and any reports or other measures required by funding sources.
Yes. Our organization is a national one and we offer sponsorship to all organizations in the United States that qualify for funding.
FREQUENTLY ASKED QUESTIONS (CONT.) While we may eventually extend this service to speech and debate clubs and tournaments abroad, we are unfortunately unable to do so at this time.
A Fiscal Sponsorship program has significant overhead and administrative, legal and accounting costs. The Fiscal Sponsorship fee covers the cost of running the program and is what allows us to offer this valuable service to smaller clubs and tournaments that do not have their own tax exempt status. Application fees alone would not be sufficient to cover our program related expenses. The 5% fee charged is actually lower than most Fiscal Sponsorship arrangements.
Due to the fact that speech and debate events are generally tied to the school year, it may be wise for your organization to set its fiscal year from August 1 to July 31 each year. This is Stoa USA’s fiscal year and would make the grant process simpler. You will want to use all the grant funds received within the fiscal year in which you receive it to avoid any tax liability for that money as income to your organization. If your fund has collected more than you wish to use in one year, arrangements with the Stoa staff to delay in distributing the funds until the following fiscal year.
The Board of Directors reviews each application for fiscal sponsorship. The typical turnaround time between receiving the application and signing a Grant Agreement is about one month. However each application is handled on a case-by-case basis, and if there is a need to expedite, there may be room for flexibility.
Yes, Stoa USA will consider organizations of all levels of development for sponsorship. Our goal is to promote Christian speech and debate. One of the best ways we can do this is by helping young clubs and organizations get off the ground before independent tax exemption is a practical reality. 23
FREQUENTLY ASKED QUESTIONS (CONT.)
No. Until we have a signed contract, your speech and debate project is not sponsored by Stoa USA and you may not solicit tax-deductible donations or apply for foundation grants on Stoa USA’s behalf.
Yes, membership dues should be collected through your Stoa USA account. However, those who pay the dues will not get a deduction for this. In general, if someone gives in exchange for something or a benefit, it will not be deductible. Membership is a benefit, and since people are receiving something in exchange for their money, it is not a gift. If a member decides to pay more than their membership dues, the amount above the membership dues can be considered a gift. The same is true for registration fees. If no part of the fee includes a donation, it will not be deductible to the donor.
All of your organization’s funding through be collected through your account with Stoa USA. This simplifies the accounting and keep things easier. Stoa USA will establish an online payment method for the convenience of your organization and your registrants. Regarding tax deductions for payments, what is true for membership dues in the previous question is also true for registration fees. If no part of the fee includes a donation, it will not be deductible to the donor. If you are collecting a fee-for-service or fee-for-admittance like a tournament registration, it is considered “earned income” and will not provide a benefit to the people paying the fee if they send it through Stoa USA unless the amount submitted is above the value of such registration (which would make that surplus amount a gift). This is because the registrants are getting a benefit from that fee. Any amount above and beyond the cost to register would be considered a gift and should go through Stoa USA so the donor will get a deduction.
FREQUENTLY ASKED QUESTIONS (CONT.)
Yes. Proper record keeping is essential and cannot be emphasized enough. Stoa USA is legally responsible for all funds that come through the fiscal sponsorship program. The directors of sponsored projects are legally and contractually responsible for reporting back to us on exactly how any funds received are spent on the project. Receipts and records also need to be saved for when you file your taxes, so keep everything.
This must be determined on a state-by-state basis. Please notify us at least three days before you need to make the purchase to ensure time for preparations and legality checks.
Figure out the Fair Market Value (FMV) of the item and let us know this amount and the donor’s information so we’ll be able to send a receipt to that donor. The receipt we issue will not specify a dollar amount for the deduction. We will simply describe the goods donated in detail, and the donor will have the responsibility of quantifying the donation and confirming its deductibility. You will then be responsible for accounting for how donated goods are used for your project when you file your reports. If a donor has questions about the deductibility of a non-cash contribution they should contact their tax professional. There is no administrative fee applied to donations of non-cash goods.
Yes. Most grant-making organizations such as foundations and governments require your organization to be a § 501(c)(3) or sponsored by one in order to receive their funding. Being fiscally sponsored means you can apply for grants through Stoa USA’s exempt status. We would receive the grant and make the distributions to you in accordance with the Grant Agreement. 25
FREQUENTLY ASKED QUESTIONS (CONT.) We will certainly do what we can to help you secure nonprofit discounts, using our exempt status. Let us know when this arises, and we will draft a letter or make a phone call on your behalf.
No, there is no minimum amount you must raise.
Stoa USA does offer a Group Exemption program to local clubs and regional organizations that qualify. See the Stoa USA handbook entitled “Group Exemption – Associate Handbook” for much more detailed information on this possibility for your organization.