The Answer

Many small, unincorporated associations have "fiscal sponsors." A fiscal sponsor is a 501c3 organization which receives money, tax exempt, for the smaller organization. The fiscal sponsor generally has a mission which is in harmony with the mission of the smaller group, and it files tax returns and so on behalf of the smaller organization in exchange for a percentage (often 5%) of the money that they receive from grants for the smaller organization. Obviously, you do not need a fiscal sponsor if your organization already has a 501c3. Also, you can't have a fiscal sponsor unless you do have an organization...individuals are not eligible for fiscal sponsorship.

People can make donations to you if you do not have a fiscal sponsor or a 501c3 organization, but their donations are not tax deductible. Most foundations require that you have at least a fiscal sponsor.

Generally speaking, it takes 6 months to a year to get your 501c3 status. A fiscal sponsor can accept money in the meantime.

Most organizations choose to get their own 501c3 when they start bringing in more than about 25 or 30 thousand dollars a year. Beneath that, it is probably worth it to pay the 5% for the fiscal sponsor, because they take care of the dealings with the IRS for you. Audits can be expensive and time consuming, and can add up to more than 5% of your income anyway.