Thinking About Fiscal Sponsorship: Pop Ups and Perpetuity

Thinking About Fiscal Sponsorship (full series)
Purpose and Politics | Pop Ups and Perpetuity
The Form 990 Black Hole | Potential Reforms

Pop Ups and Perpetuity

Countless nonprofits engage in political or public policy activism on controversial matters, and some do so from radical perspectives. But fiscal sponsorship raises some unique issues that are not present in the case of standalone tax-exempt organizations—issues that could be exploited by those who might wish to shield the precise details of their operations from scrutiny.

A quid pro quo underlies the entire nonprofit sector in the United States. The tax code incentivizes what Americans consider to be socially worthy activities in exchange for substantial transparency requirements, which are meant to ensure that tax-exempt entities are properly pursuing those purposes. Fiscal sponsorship throws a wrench into this bargain because projects are not required to file the comprehensive annual disclosures required of ordinary nonprofits. Intentionally or otherwise, fiscal sponsorship can allow groups to avoid such disclosures while still reaping many of the benefits of tax exemption. Particularly with respect to those fiscally sponsored projects that are active in politics or on public policy issues, this could be considered a form of “dark money.”

To illustrate this, consider the nonprofit network managed by Arabella Advisors, a consulting firm based in Washington, DC, that has collectively housed hundreds of fiscally sponsored projects. Many of these projects promote left-of-center perspectives on issues of political importance such as abortion, gun control, immigration, and climate change. One notable example is Demand Justice, which “popped up” seemingly out of nowhere in early 2018 to attack then-president Donald Trump’s judicial nominees (Brett Kavanaugh in particular) while also pushing for major structural changes to the Supreme Court. Despite Demand Justice’s national profile and the political relevance of its activities, virtually no public information was available about the group because it was a fiscally sponsored project of Arabella’s Sixteen Thirty Fund.

Demand Justice eventually obtained its own 501(c)(4) tax-exempt status from the IRS in 2021, but in this respect it was somewhat unusual. According to the National Network of Fiscal Sponsors, which is itself fiscally sponsored by the nonprofit TSNE, transitioning to become an independent nonprofit “is becoming the exception rather than the rule” among projects. The rate of project retention reportedly exceeds 50 percent at many large fiscal sponsors, with some retaining 80 to 90 percent of their projects. The upshot is that these groups can operate indefinitely with the outward appearance and many of the benefits of tax-exemption, but without being subject to any of the corresponding transparency requirements.

This leads to the question of whether there is a particular point at which fiscally sponsored projects should be expected to apply for their own tax-exempt status. An Arabella Advisors white paper on the fiscal sponsorship “life cycle” suggests not, arguing that many projects “find that fiscal sponsorship is a productive long-term solution” and urging projects to carefully weigh “whether the benefits of independence outweigh the costs.” Of course, it is to Arabella’s financial advantage to maintain long-term fiscal sponsorships. In 2023, the four Arabella-managed nonprofit “fiscal sponsor clients” listed on the firm’s website—the New Venture Fund, the Windward Fund, the Sixteen Thirty Fund, and the Hopewell Fund—paid Arabella (or in the New Venture Fund’s case, a presumably affiliated entity called Arabella Intermediate Holdings LLC) over $46.3 million in combined fees. However, it is unclear exactly what portion of this was specifically for services related to fiscal sponsorship .

Broadly speaking, there are at least two ways of thinking about a project’s proper “lifespan” as such: time and money. In other words, should a fiscal sponsorship’s continuation begin to raise eyebrows after a certain number of years or above a particular budgetary threshold? That is a difficult question to answer with specificity, but its importance can be illustrated through examining two projects that were formerly housed at the embattled far-left nonprofit Alliance for Global Justice. Both projects recently switched to new 501(c)(3) fiscal sponsors instead of obtaining their own independent tax-exempt status from the IRS. Like the Alliance for Global Justice, these new fiscal sponsors—The People’s Forum and the Common Counsel Foundation—were featured in the Capital Research Center’s recent report Marching Toward Violence: The Domestic Anti-Israeli Protest Movement.

The first of these projects is the Venceremos Brigade, which was established back in 1969 as a way for sympathetic American radicals to travel to Cuba and demonstrate their solidarity with Cuba’s totalitarian communist government. It continues to facilitate similar trips today, with the 50th anniversary contingent in 2019 numbering over 150 brigadistas. The Venceremos Brigade was fiscally sponsored by the Alliance for Global Justice until 2024, when it switched its sponsorship to the People’s Forum. It is worth asking: Should a group that has existed for more than half a century and that is active on an extremely controversial political issue involving support for an adversary of the United States be able to continue avoiding standard nonprofit transparency requirements while simultaneously accepting tax-deductible contributions via its fiscal sponsor?

The second example involves the Movement for Black Lives. Like the similarly named Black Lives Global Network Foundation, the Movement for Black Lives was operating as a fiscally sponsored project when it benefited from a massive financial windfall during the Black Lives Matter protests of 2020. Unlike its counterpart, however, the Movement for Black Lives did not begin the process of transitioning to an independent nonprofit. Instead, around the beginning of 2021 it switched its sponsorship from the Alliance for Global Justice to the Common Counsel Foundation. Tax filings covering that period reveal that the Alliance for Global Justice transferred $30,666,918 to the Movement for Black Lives, at the Common Counsel Foundation’s street address. As of late 2024, the Movement for Black Lives remains a project of the Common Counsel Foundation, while continuing to promote a far-left activist agenda on issues of relevance to virtually every American. Again, it is worth asking: Why should a group that evidently has at least $30 million at its disposal be able to avoid the same level of transparency required of far smaller nonprofits simply by remaining under a fiscal sponsorship arrangement?

In the next installment, most nonprofits are required to file Form 990 with the IRS, but fiscal sponsorship activities are not disclosed on Form 990.