Why do I have to ask you for my money and list a reason for the expense in the fund release request form? Can't you just give me my money every time a donation is received?
Fiscal sponsorship operates in a very gray area of the tax code, and while the IRS usually turns a benign blind eye to well-intentioned programs, people do occasionally get into trouble. The danger with the "direct pass-through approach" is that it borders on money laundering. That may sound extreme, but think about it from the view of the IRS. In order to claim a tax-deduction, someone contributes money to a 501(c)(3) corporation. That corporation in turn immediately hands over those funds to a non-exempt entity, without exercising any meaningful supervision to ensure that the funds are spent in a manner consistent with its IRS-approved tax-exempt charitable mission. The 501(c)(3) may technically be the recipient of the contribution, but the non-exempt entity is the de facto recipient, and therefore the contribution isn't really tax-deductible.
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