Fiscal Sponsorship Accounting Models: A, C, D

Quick Answer: Fiscal Sponsorship Accounting Models

Model A (direct project) puts the project on the sponsor's books. The sponsor is the legal entity, has variance power, and donor receipts use the sponsor's EIN. Model C (pre-approved grant) is a separate entity with its own EIN. The sponsor still receives the gifts and regrants them, so donor receipts still use the sponsor's EIN. Model D is the group exemption. Model F is technical assistance, and it is a different letter from the group exemption.

Related resources: Fiscal sponsor fee calculator · Fiscal sponsorship fee structures · Administrative allocations

The letter on the agreement changes who holds the money, whose EIN appears on the donor receipt, and whose Form 990 carries the activity. Gregory Colvin's summary of the models is the reference for those letters: The Models — Summary.

Key Takeaways

• Model A (direct project) - the project is a program of the sponsor. Revenue, expenses, contracts, and liability sit with the sponsor. Donor receipts use the sponsor's EIN.
• Model C (pre-approved grant) - the project is a separate entity with its own EIN. The sponsor receives the gifts and regrants them. Donor receipts still use the sponsor's EIN. The project keeps its own principal and its own liability.
• Model D (group exemption) - each subordinate is its own organization, can receive deductible gifts directly, and is covered by the central organization's group exemption letter.
• Model F (technical assistance) - the project already has its own 501(c)(3). Gifts are received in the project's name. The sponsor provides back-office help and does not control the funds.
• AlignMint Fund Management records three states on an operational fund: Not set, Model A, or Model C. Model D and Model F are not fund settings.

The Letters

Colvin's chart runs from the least financial independence for the project to more independence. The letters that show up most often in sponsor agreements, and the ones this site had been mixing up, are these:

• Model A - Direct project. No separate legal entity conducts the project. The sponsor takes comprehensive responsibility, pays the project's bills, and generally treats paid staff as its own employees.
• Model C - Pre-approved grant. The sponsor and the project are in a grantor-grantee relationship. The project is a separate legal entity. The sponsor can receive funds over time and grant them to the project from time to time.
• Model D - Group exemption. Each project in the group can have its own 501(c)(3) status and receive deductible donations directly. The sponsor is the head of the IRS group exemption.
• Model F - Technical assistance. The project has its own 501(c)(3). Funds are handled in the project's name. The sponsor's staff may help with payroll, human resources, bookkeeping, and tax returns.

In Models A and C, the sponsor receives charitable donations as its own assets and maintains discretion and control while making funds available to the project. In Models D and F, the project is entitled to receive charitable gifts directly.

Model A: Direct Project

Legal structure

Under Model A, the sponsored project is a program of the fiscal sponsor. The sponsor is the legal entity. It has variance power, the legal discretion to redirect funds to another charitable purpose if the designated project cannot use them. Donor tax receipts use the sponsor's EIN. Contracts and liability sit with the sponsor. Project staff may be employees of the sponsor. Assets belong to the sponsor.

Revenue recognition

Under FASB ASC 958-605:

• Donations designated for the project are revenue of the sponsor. Because the sponsor has variance power, contributions are recognized as the sponsor's revenue.
• The project's expenses are expenses of the sponsor. Program costs, salaries, and other expenditures appear on the sponsor's financial statements.
• The project appears as a program on the sponsor's Form 990. Revenue and expenses are reported in Part VIII and Part IX.

Form 990 reporting

• Project revenue is included in the sponsor's total revenue (Part VIII)
• Project expenses are reported as program expenses (Part IX, Column B)
• The project may be described as a separate program in Part III
• Amounts spent inside the project are internal program activity, so they are not reported as grants paid to an outside organization

Compliance risks

• Failure to exercise variance power. If the sponsor rubber-stamps every expenditure without review, the IRS may argue the sponsor does not control the funds.
• Employment classification. If project staff are sponsor employees, the sponsor is responsible for payroll taxes, benefits, and workers' compensation.
• Commingling. Project funds still need to be tracked separately from the sponsor's other programs, even though they are legally the sponsor's assets.

What the books need

Model A activity belongs on the sponsor's books, tracked as its own fund or program so revenue, expenses, and the administrative allocation stay visible without becoming a second legal entity. The allocation is the sponsor moving its own funds. See administrative allocations.

Model C: Pre-Approved Grant

Legal structure

Under Model C, the project is a separate entity and has its own EIN. The sponsor still receives the gifts and regrants them under a pre-approved grant relationship. Donor tax receipts still use the sponsor's EIN. The project keeps its own principal and its own liability.

The project is often an LLC, an unincorporated association, or a nonprofit that does not yet have its own 501(c)(3) determination. The sponsor's EIN on the donor receipt is the sponsor's. The project's EIN identifies the grantee.

Revenue recognition

The accounting follows that legal split:

• Donations designated for the project are received by the sponsor. The sponsor maintains discretion and control over those charitable assets.
• Transfers to the project are grants paid by the sponsor. The sponsor records the regrant.
• The project's own spending is not the sponsor's program expense. The project keeps its own principal and its own records of how it spends granted funds.

How a specific agreement times that revenue is a question for the sponsor's auditor. The structure itself is still a gift to the sponsor followed by a grant, which is why the donor receipt uses the sponsor's EIN.

Form 990 reporting

• Contributions the sponsor receives for the project are included in the sponsor's revenue
• Regrants to the project are reported as grants paid in Part IX
• The project can be listed as a grant recipient on Schedule I (Grants and Other Assistance)
• The sponsor reports the grant-making activity. The project's own program activities stay on the project's reporting

Schedule I is a Form 990 reporting duty for the sponsor's accountant. It is not a fund setting, and AlignMint does not produce Schedule I grant data.

Compliance risks

• Grant oversight that exists only on paper. The pre-approved grant still needs a real review of how funds are used.
• A receipt EIN that does not match the sponsor. Donors are giving to the sponsor. The receipt uses the sponsor's EIN even when the project has its own EIN.
• An agreement that does not match operations. The document has to say that the sponsor receives the gifts and regrants them, and that the project keeps its own principal and liability.

What the books need

The sponsor's ledger has to show gifts received for the project and grants paid to the project. The project's own books, outside that regrant, are the project's. That legal split is not the same thing as creating a second chart of accounts inside the sponsor's software.

Model D: Group Exemption

Legal structure

Model D is the group exemption. A central organization holds a group exemption letter from the IRS. Each subordinate is its own organization. Each one can receive deductible gifts directly, and each one is covered by the central organization's group exemption letter. Colvin's summary describes the sponsor as the head of that group exemption, with power to confer 501(c)(3) status on separate legal entities that are subordinate to or affiliated with the sponsor. Each subordinate must meet a public support test.

This is the structure used by some denominational bodies, federated nonprofits, and chapter networks. It is not Model F.

Revenue recognition

• A gift to a subordinate is that subordinate's revenue. The donor is giving to the subordinate, which can receive the gift directly.
• The central organization's revenue is its own activity, such as dues, administrative fees, and its own fundraising.
• Consolidation is a separate question. It depends on whether the central organization controls the subordinates under the applicable accounting rules, not on the group exemption letter by itself.

Form 990 reporting

• A subordinate may file its own Form 990, or it may be included in a group return filed by the central organization
• The central organization files for its own activities
• The central organization maintains the subordinate list the IRS requires for the group exemption

Compliance risks

• Subordinate eligibility. The central organization has to keep each subordinate qualified. A subordinate's prohibited activity can put the group exemption at risk.
• The annual subordinate list. The group exemption depends on keeping that IRS list current.
• Public support. Colvin notes that each project in the group must meet a public support test.

AlignMint does not store Model D as a fund. Fund Management has no group-exemption setting, and a fund cannot be configured as a subordinate under a group exemption letter.

Model F: Technical Assistance

Model F is technical assistance. The project already has its own 501(c)(3). Gifts are received in the project's name. The sponsor provides back-office help, such as payroll, human resources, bookkeeping, or tax-return support, and does not control the funds.

That is the opposite of a group exemption. The project is not borrowing the sponsor's EIN for donor receipts, and the sponsor is not the legal owner of the project's money.

AlignMint does not store Model F as a fund. Fund Management does not configure a fund as a technical-assistance client, and it does not treat Model F as a subordinate organization with its own books, a group return, or a grantee chart of accounts.

How AlignMint Records the Model on a Fund

Fund Management records only three states on an operational fund: Not set, Model A, or Model C.

• Model A: Direct project. This fund is a program of the fiscal sponsor. The sponsor is the legal entity, and donor tax receipts use the sponsor's EIN. Contracts and liability sit with the sponsor.
• Model C: Pre-approved grant. This fund is a separate entity and must have its own EIN. The sponsor still receives the gifts, so donor tax receipts use the sponsor's EIN. The project keeps its own principal and its own liability.

The EIN fields follow those states:

• Model A and an unset model may leave the fund EIN blank. Settings then shows the parent EIN.
• Model C requires that fund's own 9-digit EIN. Settings shows that EIN and does not copy the parent EIN or the parent legal name onto the fund.
• For Model A, Model C, and an unset fund, the EIN a donor sees is always the parent organization EIN. The Model C EIN is the grantee's identity. It is not the donor receipt EIN.

Model C in AlignMint is still a fund on the sponsor's ledger. It is not a separate AlignMint organization, a separate chart of accounts, or a Schedule I filing feature.

Model D and Model F are not fund types. AlignMint does not configure a fund as Model D, Model F, a group exemption, or a technical-assistance client.

Getting Started

If you are matching an agreement to a ledger, start with the letter in the contract, then record only the fund state AlignMint actually stores.

Related:

• Fiscal Sponsor Management Software - One account for sponsored organizations, with each organization's records kept separate
• The Complete Guide to Fiscal Sponsor Management Software - What fiscal sponsors need from software
• Fiscal Sponsorship Fee Structures Explained - How rates differ by model
• Fiscal Sponsor Administrative Allocations - How the share posts inside the sponsor
• Nonprofit Accounting Standards - What nonprofits need to know about compliance
• Fund Accounting - Restricted-fund tracking on the organization ledger