Fiscal Agent: Best Practices & Detailed 2023 Guide

It is I who came up with the idea of this capital-intensive project, why must I need a fiscal agent or sponsors? Well just so you know, you need either of these two organizations for your capital-intensive project. Why? This is primarily because many nonprofit organizations do not have the experience needed to manage the administrative matters of a business, hence they require the services of a fiscal agent. This guides entails everything you need to know about fiscal agent vs sponsor, a nonprofit agent, how to find a fiscal agent or sponsors, and every other thing you need to know regarding this topic

Fiscal Agent

A fiscal agent works with a nonprofit or charitable organization by overseeing most of its administrative aspects, which includes grant funds of that agency.

Without a fiscal agent, the lead applicant for the grant would receive it directly. However, the downside to this is that the Internal Revenue Service (IRS) would attribute the grant funds to the applicant’s personal income, which will then be tax-deductible.

In general, a fiscal agent works to administer and protect the agency’s grant funds.

Find out more about fiscal agents, and if there’s a difference between fiscal agents and fiscal sponsors as you read this article.

What Is a Fiscal Agent?

A fiscal agent is a financial organization such as a bank or trust company that acts on your behalf in order to conduct specific financial tasks.

These tasks can include; redeeming bonds or coupons, replacing lost or damaged securities, handling tax issues, and so on. If there is a specific financial task you need to be handled, a fiscal agent takes care of it.

Another accurate definition of a fiscal agent is that it is an established IRS 501(c)(3) tax-exempt organization that accepts donations on behalf of a group or organization that has no IRS tax exemption.

Oftentimes, a bank or trust company fiscal agents are used by nonprofits or charity organizations or generally people who cannot handle certain financial duties themselves.

While a nonprofit organization acting as a fiscal agent can offer numerous services as part of the arrangement, it must at least retain supervision and control over funds, making sure they are used strictly for the sponsored group’s charitable work.

Additionally, it must keep records proving that funds are used for tax-exempt purposes; and ensure that the funds are used in a manner that promotes the fiscal agent’s own charitable work.

Hence, due to their significance, the IRS has established strict guidelines that guide fiscal agents to maintain their tax status and not break the rules.

How Do Fiscal Agents Work?

Fiscal agents, also known as fiscal sponsors are more predominant in the nonprofit sector.

This is because, many nonprofit organizations don’t have enough experience needed in managing the administrative aspects of a business, while others do not have the required 501(c)(3) status needed to legally operate one.

In both situations, a fiscal agent can assist by providing limited financial and legal contributions for both groups and individuals. Hence, those in need of a fiscal agent should carry out their research thoroughly.

In light of all this, it is worthy to note that the concept of “fiscal agency” describes the arrangement of a charity to act as the legal agent for a project conducted with another non-exempt organization.

And a fiscal agent does not retain the right and control that defines a fiscal sponsorship.

However, under agency law, the agent (tax-exempt organization) acts on behalf of the principal (project), who has the right and legal duty to direct and control the agent’s activities.

Pros and Cons of Fiscal Agents

Having established the significance of fiscal agents, it is safe to note that it’s not all rosy.

In as much as they have unwavering advantages, especially to charity organizations, there are still some downsides in working with fiscal agents.

Below are the pros and cons of using fiscal agents.

Pros of Fiscal Agents

In working with fiscal agents, below are some of the advantages of it

A non-profit organization working with a fiscal agent may be provided with access to the abilities of the fiscal agent’s staff or other services.
Fiscal agents help a charity organization to draw more funding.
A sponsored organization can receive human resources and accounting services from the fiscal agent, have access to insurance and benefits packages and receive legal and other advice from a nonprofit with more experience.

Cons of Fiscal Agents

With its good sides, come the downsides. Below are some likely disadvantages that come with working with fiscal agents.

They can be very expensive to work with, as they regularly charge fees for their services.
Although it looks like leaving fiscal agents to handle all your financial matters looks like a good idea, it has some lapses, as the organization may not have the ability to make its own decisions.
Some funders don’t like to make grants through fiscal agencies.

The Criteria for a Fiscal Agent

To establish a fiscal agency, there are several factors taken into consideration.

#1. Legal Contract

Establishing a fiscal agency involves a lot of legal paperwork. It requires a well-crafted legal agreement, usually written by a lawyer, and tailored to meet the requirements of both parties.

The agreement should specify that the fiscal sponsor is responsible for all legal compliance relating to receiving, reporting, and acknowledging charitable donations. In addition, it must provide information on administrative fees.

These agreements also specify services the sponsoring organization will provide. Services may include;

Amount of control over the sponsored organization
Whether the sponsored group will become a formal, incorporated entity
The organization’s insurance, liability, and indemnification
When the arrangement will end
And which party will own any assets produced from the arrangement.

#2. Qualifications

Organizations that can serve as fiscal agents include the government bureaus. Examples of this are school boards or labor offices, and other nonprofit agencies.

This is because these groups have profound experience in both issuing and administering grant funds.

Conversely, some specialized nonprofit agencies such as those engaged in scientific research or education may choose to opt for fiscal agents with experience in their particular field.

A fiscal agent with experience in these fields will recognize certain expenditures that are vital to completing the group’s mission.

Duties of a Fiscal Agent

Below are the duties of an experienced fiscal agent.

A fiscal agent promotes the agency’s mission by protecting its accounts and funding
Preparation of paperwork needed to receive grant funding in accordance with the grant requirement.
Disbursement of travel expenses for agency personnel and reconciliation of regular budget reports.
Coordination of hiring practices

Fiscal Sponsors

The term fiscal sponsors refer to nonprofit organizations that help philanthropic organizations grow their capacity by providing fiduciary oversight. In addition to fiduciary oversight, they also provide financial management and other administrative services. Generally, there is a fiscal sponsorship before we talk about the sponsors.

What Is Fiscal Sponsorship?

According to a 4-page pdf released by probonopartners.org, fiscal sponsorship is an arrangement in which a 501(c)(30 tax-exempted entity (the sponsor) agrees to accept donations on behalf of another entity that is not tax-exempted (the Project). From the above definition, we can infuse that in every sponsorship agreement there are usually two parties. The Sponsor and the organization that wants to run a project. Fiscal sponsors generally offer administrative support to the project organization.

Under the watching eyes of a fiscal sponsor, the organization embarking on a project can seek grants, hold fundraising events, and collect tax-deductible donations.

According to Internal Revenue Code, fiscal sponsorships are lawful as long as;

The sponsor maintains management and control over the cash raised for the project.

The funds are used solely for the project and furthers the philanthropic objective of the sponsor.

In dealing with the fiscal agent vs sponsor, both are often used interchangeably however, they greatly differ from one to the other. When you hear fiscal sponsor, it refers to a nonprofit organization that helps philanthropic organizations grow their capacity by providing fiduciary oversight, financial management, and other administrative services. The fiscal agent on the other hand a fiscal agent is a financial organization such as a bank or trust company that acts on your behalf in order to conduct specific financial tasks.

In terms of fiscal agent vs sponsor, there is a key distinction between both. Working with a fiscal sponsor means the funds contributed to a non-exempt project are tax-deductible to the donor while funds with a fiscal agent are not tax-deductible.

Oftentimes, many organizations intend to form fiscal sponsorships so that they can raise tax-deductible contributions. Unfortunately, their arrangement fails to meet the IRS criteria for fiscal sponsorship in most cases.

Fiscal sponsorship allows the exempt sponsor to receive funds limited for the sponsored project on the project’s behalf. In turn, the sponsor accepts the responsibility to ensure that the funds are properly spent for their intended purpose.

How to Find a Fiscal Agent

A nonprofit organization can find potential fiscal agents by searching for other groups with similar missions to theirs.

There’s also an online Fiscal Sponsor directory that provides free searches for fiscal sponsors in 33 states and lists eligibility requirements. They also include fees, services, and types of projects supported.

When the organization locates a fiscal agent, GrantSpace then advises that they send the fiscal sponsor a written or oral proposal.

The proposal should contain why they need a fiscal agent, their goals, objectives, methods, staffing, and budget. Additionally, it should state how the partnership will be beneficial to the fiscal agent.

The Bottom Line

The role of a fiscal agent in a nonprofit or charitable organization isn’t to be overemphasized. I hope this article gives you an insight into what it really is. All the best.

FAQs On Fiscal Agent

Who is the fiscal agent to the federal government?

the Federal Reserve BanksThe Federal Reserve Act of 1913 provides that the Federal Reserve Banks will act as fiscal agents and depositories of the United States when required to do so by the Secretary of the Treasury. As fiscal agents, the Reserve Banks support the Department of the Treasury with services related to the federal debt.

Where does government keep its money?

The Reserve Bank of India Act, 1934 requires the Central Government to entrust the Reserve Bank with all its money, remittance, exchange, and banking transactions in India and the management of its public debt. The Government also deposits its cash balances with the Reserve Bank.

Who prints money in the world?

Bureau of Engraving and printing the Federal Reserve orders new currency from the Bureau of Engraving and Printing, which produces the appropriate denominations and ships them directly to the Reserve Banks. Each note costs about four cents to produce, though the cost varies slightly by denomination.

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Fiscal Agent: Best Practices & Detailed 2023 Guide

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