Here's what happens when a project moves from one fiscal sponsor to another
Sometimes a Model A project comes into being with one sponsor and stays with it until its work is complete, its funding runs out, or its people end the project and move on. Other times, projects transfer from one 501(c)(3) sponsor to another, which may occur once, twice, or many times.
When a project applies to a 501(c)(3) organization for sponsorship, it may have a former sponsor. The two sponsors must sign an agreement transferring the project assets and liabilities from the old one to the new one. The project committee, if any, also may be a party to the recent sponsorship agreement, or it may have a separate agreement with the new sponsor. A similar transfer agreement is required when the project moves on, including where it has incorporated and obtained IRS recognition of its 501(c)(3) status. This “exit” situation requires a transfer agreement to move the project assets and liabilities from the sponsor to the project’s new corporation.
There is often a clean cutoff of employment for employees, and there may or may not be an assurance of employment by the new sponsor or spun-out charity. Accrued leave must be paid to the employee by the old sponsor or assumed by the recipient charity to the extent it hires the same employees.
Like Model A projects, a Model C project may decide that it would prefer to leave the fiscal sponsorship nest and fully qualify to function as a stand-alone 501(c) (3) public charity. Or it may wish to transfer from one fiscal sponsor to another. In some cases, the transfer out may be more straightforward for a Model C project that obtains charitable tax status because the sponsor may show minimal assets and liabilities in its restricted fund for the project’s purposes at the end. It can just terminate the sponsorship agreement, close the fund, and grant the net assets to the qualified 501(c)(3) successor as public support in a final exercise of discretion and control.
SOURCE: Fiscal Sponsorship: 6 Ways To Do It Right, Third Edition