A Conversation with the Capital Research Center’s Robert Stilson (Part 1 of 2)

The research analyst talks to Michael E. Hartmann about fiscal sponsorship—including how it works, its history and purpose, its apparent growth, and the benefits it provides, one of which may be considered a drawback.

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Published late last month, Capital Research Center senior research analyst Robert Stilson‘s four-part series, “Thinking About Fiscal Sponsorship,” thoughtfully describes how the nonprofit funding mechanism works, overviews its history and purpose, and proposes some potential reforms that would balance the benefits it provides to the nonprofit sector with the drawbacks it causes for the transparency of and thus trust in the sector.

Specifically, he proposes a new Schedule S that nonprofit fiscal sponsors would file as part of their Internal Revenue Service Form 990s. The additional document would include more information about sponsored organizations and projects than is now reported and publicly available.

Stilson was kind enough to join me for a recorded conversation last week. The almost 14-minute video below is the first part of our discussion; the second is here. During the first part, we talk about fiscal sponsorship—including how it works, its history and purpose, its apparent growth, and the benefits it provides, one of which may be considered a drawback.

A fiscally sponsored group or project “does not have its own tax-exempt status from the IRS, so it operates as a project of a group that does,” Stilson describes. Fiscal sponsorship “was never created by statute. It’s never been created in law. It’s just something that operationally has developed in the nonprofit sector” and the IRS has permitted.

“It’s hard to tell exact numbers” about its use, he tells me, “because there’s no fiscal-sponsorship registry, right? Nobody goes out and registers, I am a fiscal sponsor. … But you can tell that the practice has increased.”

It “really started getting going through the ’70s and ’80s,” according to Stilson, with groups like the Tides Foundation and some others. It accelerated more “through the 1990s, even more through the 2000s,” and some “reporting has said that it’s even accelerated even since 2020, just in the last few years.

“There are groups that exist out there, their charitable purpose is to provide fiscal sponsorship,” he notes.

Fiscal sponsorship’s primary purpose “would be incubation,” Stilson says. “So a group wants to start up. They don’t have it in them … to do all the administrative back-office stuff right away. They get that benefit from the fiscal sponsor.”

Plus, “it’s faster and cheaper to become a fiscally sponsored project than it is to become a tax-exempt nonprofit” on your own, he continues. “And if you want to get funded right away” by an “institutional grantmaker like a foundation, they need to give to an established” entity under § 501(c)(3) of the Internal Revenue Code “and doing it through fiscal sponsorship allows them to do that quickly.”

Another benefit of the mechanism—or, depending on your point of view, a drawback—is its effects on transparency. There’s “very much less disclosure for a fiscally sponsored project for its financials, operations, everything like that,” Stilson says. “There’s no illegality going on, so in that sense, it’s not an abuse, but I think the transparency could be improved.”

If the 1969 Tax Reform Act still structuring nonprofitdom is considered the “Grand Bargain” that many call it, “I would agree that as fiscal sponsorship is currently practiced and reported, it does not fulfill the Grand Bargain transparency angle that we’ve set up,” he says.

In the conversation’s second part, Stilson discusses his recommended new Schedule S for nonprofits that provide fiscal sponsorships and how it would increase trust in the entire sector.

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This article first appeared in the Giving Review on February 10, 2025.

Source: https://capitalresearch.org/article/a-conversation-with-the-capital-research-centers-robert-stilson-part-1-of-2/