Fiscal Sponsorship Accounting Requirements: Model A vs C vs F

Not all fiscal sponsorships are created equal. The model you operate under — Model A, Model C, or Model F — fundamentally changes how you account for revenue, report on your Form 990, and manage compliance. Getting this wrong can trigger IRS scrutiny, jeopardize your tax-exempt status, or create audit findings.

This guide covers the accounting requirements for each major fiscal sponsorship model, based on IRS guidance, FASB ASC 958, and National Network of Fiscal Sponsors (NNFS) standards.

The Three Major Models

Gregory Colvin's seminal work "Fiscal Sponsorship: 6 Ways to Do It Right" defines six models. Three are most commonly used:

• Model A — Direct Project (Comprehensive): The sponsor owns and operates the project directly
• Model C — Pre-Approved Grant Relationship: The sponsor makes grants to an independent organization
• Model F — Group Exemption: Multiple organizations share a group exemption letter

Each model creates different legal relationships, which drive different accounting treatments.

Model A: Direct Project (Comprehensive Fiscal Sponsorship)

Legal Structure

Under Model A, the sponsored project is legally a program of the fiscal sponsor. The sponsor has variance power — the legal right to redirect funds to another charitable purpose if the designated project can't use them. Project staff may be employees of the sponsor. Assets belong to the sponsor.

This is the most common model and the one most people think of when they hear "fiscal sponsorship."

Revenue Recognition

Under FASB ASC 958-605 (Revenue Recognition for Not-for-Profit Entities):

• Donations designated for the project are revenue of the sponsor. Because the sponsor has variance power, contributions are recognized as the sponsor's revenue — not as agency transactions.
• 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 the sponsor's Part VIII (Revenue) and Part IX (Functional Expenses).

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 (Statement of Program Service Accomplishments)
• Grants to the project are NOT reported as grants paid — they're internal program allocations

Compliance Risks

• Failure to exercise variance power: If the sponsor rubber-stamps every expenditure without review, the IRS may argue the sponsor doesn't truly control the funds — potentially reclassifying the arrangement as an agency transaction
• Employment classification: If project staff are treated as sponsor employees, the sponsor is responsible for payroll taxes, benefits, and workers' compensation
• Commingling: Project funds must be tracked separately from the sponsor's general operations, even though they're legally the sponsor's assets

What Your Software Needs

For Model A, your accounting software must:

• Track project revenue and expenses as a separate fund or cost center within the sponsor's books
• Generate program-level financial statements for each project
• Roll up project financials into the sponsor's consolidated statements
• Handle payroll if project staff are sponsor employees
• Calculate and allocate sponsor fees from project revenue

Model C: Pre-Approved Grant Relationship

Legal Structure

Under Model C, the fiscal sponsor makes grants to the sponsored organization, which operates as an independent entity (often an LLC, unincorporated association, or even another nonprofit without 501(c)(3) status). The sponsor does not have variance power — instead, it exercises oversight through a grant agreement that requires pre-approval of expenditures.

Revenue Recognition

The accounting treatment for Model C is fundamentally different from Model A:

• Donations designated for the project are initially revenue of the sponsor. The sponsor receives the contribution.
• Disbursements to the project are grants paid by the sponsor. When the sponsor transfers funds to the project, it records a grant expense.
• The project's internal expenses are NOT on the sponsor's books. The project maintains its own accounting records for how it spends the grant funds.

Under FASB ASC 958-605, the key question is whether the sponsor has variance power. In Model C, the sponsor typically does not — it has agreed to grant funds to the project as long as the project meets the terms of the grant agreement. This means:

• Contributions may be treated as conditional contributions to the sponsor (recognized as revenue when conditions are met)
• Or as agency transactions where the sponsor is acting as an intermediary (contributions are recorded as liabilities until disbursed)

The correct treatment depends on the specific language in the fiscal sponsorship agreement. Consult your auditor.

Form 990 Reporting

• Contributions received for the project are included in the sponsor's revenue
• Disbursements to the project are reported as grants paid in Part IX, Line 1-3
• The project is listed as a grant recipient in Schedule I (Grants and Other Assistance)
• The sponsor reports the grant-making activity, not the project's program activities

Compliance Risks

• Inadequate grant oversight: The sponsor must have a process for reviewing and approving expenditures. Rubber-stamping creates risk.
• Agency vs. contribution classification: If the IRS determines the arrangement is an agency transaction (not a true contribution), the sponsor may need to restate its financials
• Grant agreement gaps: The fiscal sponsorship agreement must clearly define the grant relationship, expenditure approval process, and reporting requirements

What Your Software Needs

For Model C, your accounting software must:

• Track contributions received for each project separately
• Record grant disbursements to each project
• Maintain a liability balance for undisbursed project funds
• Generate Schedule I data for Form 990 reporting
• Track grant agreement compliance (expenditure approvals, reporting deadlines)

Want to see how Alignmint handles fiscal sponsor accounting across all models? Schedule Your Free Setup | Explore Features

Model F: Group Exemption

Legal Structure

Under Model F, a central organization holds a group exemption letter from the IRS, and subordinate organizations are covered under that exemption. Each subordinate operates as an independent entity with its own board, finances, and programs. The central organization maintains a list of subordinates and certifies their eligibility annually.

This model is common in denominational structures (churches), federated nonprofits (United Way affiliates), and membership associations.

Revenue Recognition

Model F is the simplest from an accounting perspective:

• Each subordinate recognizes its own revenue. Donations to a subordinate are that subordinate's revenue — not the central organization's.
• The central organization's revenue is limited to its own activities — membership dues, administrative fees, and its own fundraising.
• No consolidation is required unless the central organization controls the subordinates (which would trigger FASB ASC 958-810 consolidation rules).

Form 990 Reporting

• Each subordinate files its own Form 990 (or is included in a group return filed by the central organization)
• The central organization files its own Form 990 for its own activities
• If filing a group return, the central organization includes all subordinates' financial data
• The central organization must maintain an annual list of subordinates and report changes to the IRS

Compliance Risks

• Subordinate eligibility: The central organization must verify that each subordinate continues to qualify for tax-exempt status. If a subordinate engages in prohibited activities, it can jeopardize the entire group exemption.
• Annual certification: The IRS requires annual updates to the subordinate list. Failure to maintain this list can result in loss of the group exemption.
• Subordinate independence: If the central organization exercises too much control over subordinates, the IRS may reclassify the arrangement as Model A.

What Your Software Needs

For Model F, your accounting software must:

• Maintain completely separate books for each subordinate organization
• Support independent financial reporting per organization
• Optionally consolidate for group return filing
• Track subordinate eligibility and certification dates
• Provide role-based access so each subordinate manages its own data

How Alignmint Handles All Three Models

Alignmint was designed from the ground up to support all fiscal sponsorship models:

Capability	Model A	Model C	Model F
Per-org data isolation	✅ Project as separate fund	✅ Grantee as separate org	✅ Subordinate as separate org
Consolidated reporting	✅ Sponsor-level rollup	✅ Grant portfolio view	✅ Optional group consolidation
Fee allocation	✅ Auto from project revenue	✅ Auto from grant disbursements	✅ Flat or percentage
Role-based access	✅ Project staff see their data	✅ Grantee sees their data	✅ Subordinate manages own books
Fund accounting	✅ Pre-built chart of accounts per project	✅ Pre-built chart of accounts per grantee	✅ Pre-built chart of accounts per subordinate
Form 990 support	✅ Program-level reporting	✅ Schedule I grant data	✅ Per-org or group return

The key advantage is flexibility — you configure Alignmint to match your specific model rather than forcing your operations into a software structure that doesn't fit.

Getting Started

If you're a fiscal sponsor navigating the accounting requirements of your specific model, see how Alignmint adapts to your arrangement.

Ready to simplify fiscal sponsor accounting? Schedule Your Free Setup | Explore Features

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Related:

• Fiscal Sponsor Management Software — Purpose-built for managing multiple organizations from one account
• The Complete Guide to Fiscal Sponsor Management Software — What fiscal sponsors need from software
• Fiscal Sponsorship Fee Structures Explained — How sponsor fees work across models
• Nonprofit Accounting Standards — What nonprofits need to know about compliance
• Fund Accounting — True nonprofit fund accounting per organization