Tax sponsorship describes a relationship between a non-profit organization with a status of 501 (c) (3) and a project led by a separate organization, group or individual that does not have 501 (c) (3) status. Tax sponsorship allows the exempt sponsor to accept, on behalf of the project, limited funds for the sponsored project. The sponsor, in turn, assumes responsibility for ensuring that funds are spent properly to achieve the project`s objectives. This regulation is useful for new not-for-profit companies that want to “test the waters” before deciding whether to form an independent unit or other temporary project or coalition looking for a neutral party to manage funds. The main difference between tax sponsorship and the tax agency agreement is that funds that participate in a non-exempt project with a tax sponsor are tax deductible for the donor and those who participate in a project with a financial officer are not deductible. Many organizations intend to create tax sponsorships in order to collect tax-deductible contributions, but in most cases their agreement will not meet the IRS criteria for tax sponsorship. The concept of the “tax agency” refers to the agreement of a charitable organization established to act as a legal agent for a project with another non-exempt organization. However, a tax agent does not retain the discretion and control that defines tax sponsorship. Under agency law, the agent (exempt agency) acts on behalf of the principal (project), who has the legal right and obligation to direct and control the agent`s activities. A tax officer is an organization, for example. B, a bank or trust company acting on behalf of another party that performs various financial tasks. A financial representative can assist in the repayment of bonds or coupons, process tax issues, replace lost or damaged securities, and perform various other financial tasks.

Tax agents (or tax sponsors) are the most common in the associative sector. Many non-profit organizations do not have much experience in managing the administrative aspects of a business, while others do not have the 501 (c) (3) status required for the legal operation of a business. In both cases, a financial representative can assist by providing groups and individuals with limited financial and legal oversight. However, those looking for a tax agent should do their homework, as IRS rules can be difficult to apply to such rules. There are several models of tax agency and tax sponsorship. It is therefore important that the parties concerned understand precisely the nature of their relationship and, as such, specify them in a written agreement.