In common practice, terms such as nonprofit, tax-exempt, charity, or the more technical 501(c)(3) are used interchangeably in the United States. They all mean that an organization has been organized for purposes other than profit and that some government agency has recognized that. Other than the few exceptions described in the following sections, only organizations recognized by some level of government as formed exclusively for charitable, nonprofit purposes can receive grants. In other countries, nongovernmental organization (NGO) designates a nonprofit organization.

The most commonly recognized form of tax-exempt status in the United States is the 501(c)(3) status conferred by the Internal Revenue Service (IRS) to organizations formed for educational or charitable purposes and not to make a profit, hence a nonprofit organization. In certain cases, fraternal organizations—501(c)(8) or 501(c) (100), cemetery companies—501(c)(13), and some veterans organizations—501(c)(4) or 501(c)(19) can also receive grants. Other nonprofit organizations might not be eligible to receive tax-deductible donations such as grants.

The IRS publishes a list of nonprofit organizations. Look for Publication 78 or find it online at irs.gov/charities and select “Search for Charities.” In Canada, the equivalent tax status comes from Canadian Customs and Revenue Agency certifying Canadian Charitable Registration. See cra-arc.gc.ca/chrts-gvng.

It’s also common for organizations to be recognized as tax-exempt by the state or states in which they run programs or have offices. Your organization probably has (or is seeking) state tax-exempt status as well as federal tax-exempt status because this usually carries exemption from both state income taxes and state and local sales taxes. The state agency responsible for granting tax-exempt status varies from state to state, but the office of the secretary of state or the attorney general usually handles this task.

It’s not necessary to have federal tax-exempt status to have state tax-exempt status and vice versa.

Many funders will accept either federal or state nonprofit status. With every grant proposal you submit, you will usually be asked to include proof of nonprofit status. If you have federal 501(c)(3) status, you don’t need to also submit evidence of state charity status.

When receiving a grant for a public school or other government agency (such as a public library), the funder will assume nonprofit status applies, even though these are not 501(c)(3) organizations, and will probably not ask for proof of nonprofit status. If, however, a funder receives a proposal from a private school, it will need proof of nonprofit status. Religious institutions might include proof of nonprofit status rather than have it questioned.

Less than 10 percent of foundations (and an even smaller percentage of corporations) will make grants to individuals. The ones that do make grants to individuals usually do so as scholarships or for research, independent study, or artistic pursuit. Government agencies also offer scholarship funds and research grants. You might also find it necessary to write grant proposals for residencies that provide room, board, and a studio, laboratory, or other facility but no cash.

The grants to individuals you as a grant writer are concerned with are all based on merit, even though some scholarships have a financial need consideration. Many government agencies and nonprofits give financial assistance based on need, but this aid requires only an application form, not a grant proposal.

Whenever money flows from one nonprofit organization to another, there’s little room for the IRS to question the transaction. This is not so when money goes from a nonprofit to an individual. Additional record-keeping and rules come into play, and most funders keep life simple by not making grants to individuals.

One rule that affects grants to individuals involves private inurnment. This term refers to something that would benefit a person who is a close relative of or who has a relationship with a funder. For example, if your parents establish a foundation to provide scholarships to students in the health sciences and you are attending medical school, their foundation generally cannot provide you with a scholarship, although it could give your roommate one.

Chapter 22 covers research and grant proposal techniques specifically for individuals, although you’ll also need to know the basics of grant writing covered in the rest of this book.

Businesses can sometimes receive grants. Government agencies such as the Small Business Administration make grants to help businesses get started or make improvements. The procedures for these grants are the same as for nonprofit grants.

But if your group is new and doesn’t yet have nonprofit status or if you’re seeking funds to make a film, create a work of public art, or for your own private research, you will need a plan.

Plan A: Become a nonprofit

For projects that will take place over a period of years, you might want to consider forming a nonprofit corporation. Advantages include making you eligible for 10 times as many funding possibilities and possibly making the costs of your project exempt from sales taxes. Disadvantages include a greater burden of bookkeeping and government reporting (depending on how much money you raise) and yielding ultimate control of your work to a board of directors.

It’s a complicated issue covered in a number of books and websites (good examples of which appear in Appendixes B and C), but it was worth raising the subject here so you can keep it in mind as you read further.

Plan B: Borrow Tax-Exempt Status

Fortunately, the law allows for organizations that already have tax-exempt status to accept grant money on behalf of a group (or individual) that does not have nonprofit status.

This is called fiscal sponsorship. It’s a very common means for groups just starting out to receive tax-deductible contributions from the public—including foundation, corporate, and even government funders—while developing their programs and seeking nonprofit status. The fiscal sponsor will usually deduct a service fee from contributions it receives on your behalf, usually 5 to 10 percent, depending on how much service they provide.

Legally, the fiscal sponsor is responsible for the contributions made to it on your behalf, which requires a level of scrutiny and control that makes fees necessary. The services a fiscal sponsor provides can range from simply accepting funds and issuing a check to full bookkeeping and management assistance.

Individuals, especially those in the arts, also use fiscal sponsorship to raise funds to carry out a project or to provide seed money for a project. Fiscal sponsorship makes possible many, many documentary films. (Note all those credits to funders at the end of documentary films you see on public television.)

Common fiscal sponsors include nonprofit service organizations, community foundations, and other public foundations (that is, foundations that receive support from a wide section of the public rather than a single individual).

Here are some agencies providing fiscal sponsorship:

Dance Theatre Workshop
219 West 19th Street
New York, NY 10011
dancetheaterworkshop.org/programs
This service group is involved with sponsorship for dancers, musicians, performers,
visual artists, and art educators.

Film Arts Foundation
145 9th Street, #101
San Francisco, CA 94103
filmarts.org (and click on “Services”)
This foundation is involved with sponsorship for film projects.

Fiscal Sponsor Directory
fiscalsponsordirectory.org
National directory of fiscal sponsors created by the San Francisco Study Center.

Fractured Atlas
fracturedatlas.org
Service organization for artists, specializing in fiscal sponsorship.

New York Foundation for the Arts
155 Avenue of the Americas, 14th Floor
New York, NY 10014
nyfa.org/fs
This grantmaking public charity is involved with sponsorship for emerging arts
organizations and for artist projects in all artistic disciplines.

The Rose Foundation
6008 College Avenue, Suite 10
Oakland, CA 94618
rosefdn.org/
This foundation is involved with sponsorship of environmental protection and com-
munity regeneration projects.

Third Sector New England
18 Tremont Street, Suite 700
Boston, MA 02108
tsne.org (and click on “Programs & Services”)

This service organization is involved with sponsorship for community coalitions and regional or national projects that share their mission of creating healthy, sustainable communities and active democracy.

Hundreds of organizations offer fiscal sponsorship, and you’ll probably find there’s more than one in your community. When considering an organization to sponsor you, be sure to check them out. Talk to someone whom they have sponsored, and take a look at their audited financial statements for the last three years to see if they’re financially stable.

Ask an accountant to review the financial statements with you because these are difficult to understand if you’re not used to reading them. It doesn’t happen often, but nonprofits have been known to go out of business having spent not only all of their funds but also those of the groups they were sponsoring.

For more information, you might want to read Fiscal Sponsorship: 6 Ways to Do It Right, now in its second edition, by Gregory L. Colvin (Study Center Press, 2006) or consult the guide to fiscal sponsorship on the Foundation Center’s website.