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Fiscal Agent

What Is a Economic Agent?

A fiscal agent is an organization, such as a bank or trust company, that acts on behalf of another get-together performing various financial duties. A fiscal agent may assist in the redemption of bonds or coupons, handle tax issues, renew lost or damaged securities, and perform various other finance-related tasks.

Key Takeaways

  • A fiscal agent is a third-party institution that handles various financial and administrative duties on behalf of some other party.
  • Often a bank or confidence company, fiscal agents are frequently used by nonprofits or charities who do not have the experience or capacity to handle certain economic duties unaided.
  • Because fiscal agents most often handle the finances of philanthropic organizations, the IRS has established tyrannical guidelines in order so they maintain their tax status and do not break the rules.

How Fiscal Agents Work

Fiscal advocates (or fiscal sponsors) are most often seen in the nonprofit sector. Many nonprofit organizations don’t have a lot of experience head the administrative aspects of a business, while others do not have the required 501(c)(3) status needed to legally work one. In both cases, a fiscal agent can help by providing limited financial and legal oversight for groups and individuals. Those essay a fiscal agent should do their homework, however, as the IRS rules governing such arrangements can be tricky.

The concept of “monetary agency” references the arrangement of an established charity to act as the legal agent for a project conducted with another non-exempt body. However, a fiscal agent does not retain the discretion and control that defines a fiscal sponsorship. Under means law, the agent (tax-exempt organization) acts on behalf of the principal (project), who has the right and legal duty to direct and control the substitute’s activities. 

Fiscal Agents vs. Fiscal Sponsors

The key difference between a fiscal sponsorship and a fiscal agency arrangement is that lucres contributed to a non-exempt project that has a fiscal sponsor are tax deductible to the donor and those that are contributed to a project with a budgetary agent are not. Many organizations intend to form fiscal sponsorships so that they can raise tax-deductible contributions, but in most suitcases, their arrangement will fail to meet IRS criteria for a fiscal sponsorship.

A fiscal sponsorship describes a relationship between a nonprofit structure with 501(c)(3) tax-exempt status and a project conducted by a separate organization, group, or individual that does not sire 501(c)(3) status. Fiscal sponsorship permits the exempt sponsor to accept funds restricted for the sponsored project on the activity’s behalf. The sponsor, in turn, accepts the responsibility to ensure funds are properly spent to achieve the project goals. This set-up is useful for new charitable endeavors that want to “test the waters” before deciding whether to form an independent organism or another temporary project or coalition looking for a neutral party to administer funds.

There are several models of monetary agency and fiscal sponsorship. Accordingly, it is important for parties involved to accurately understand the nature of their relationship and express as such in a written agreement.

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