TO (c)3 OR NOT TO (c)3

Dear Kim:

I am the Founder and Artistic Director of a small arts organization which has been happily fiscally sponsored since 2001. This past year we’ve grown a lot, and we’re debating applying for our own 501(c)3 status. We see as advantages that we’d be more independent, seem more reputable to funders, could simplify the donation process, and may save money in the long run. But there seem to be a lot of advantages to staying with our sponsor as well, including a reputable company that does impeccable work and that foundations know, as well as being part of a meaningful artistic community with them. Should we become a separate organization or not? Are there advantages I’m leaving out? Am I understating the importance of perception in the eyes of the funders?

-To (c)3 or not to (c)3, that is the question.

Dear To (c)3:

I have several rules for fundraising; Number Four is: Don’t EVER do anything simply to please foundations. To decide whether or not to become a (c)3, focus on questions of mission and take the question of foundations off the table. Having said that, I have never met a funder who thought less of a group because it had a fiscal sponsor, and sometimes the fiscal sponsor lends a note of credibility (that is important to donors and funders and to the general public). So, I don’t think funder perception is an issue one way or the other. Your own (c)3 would let you be more independent in theory, but your letter does not indicate that your fiscal sponsor holds you back in any way, so for little gain in independence, your organization would have a lot more administrative responsibilities related to having your own tax status (to say nothing of the expense of filing to become an independent entity). It sounds as though you have visibility and credibility from your fiscal sponsor and you seem to enjoy being part of that artistic community. I can’t offer any compelling reasons to leave your current set-up.

-Kim Klein

Note to Readers: In order for contributions to an organization to be tax-deductible for the donor, an organization must either have been designated as a tax-exempt organization under the IRS rule 501(c)3 or be fiscally sponsored by an organization that has that status. For more information on whether or how to apply for 501(c)3 status, contact your local nonprofit assistance center, volunteer center, or www.compasspoint.org.