Module 5: The Backpack Trick
How a project with no EIN, no board, and no tax return gets to look — and operate — like a real nonprofit
By the PMC Investigations Desk · Project Milk Carton · Module 5 of “The Game You Were Never Taught” · Financial Move 3 of 8
The move
This is the third of eight financial moves we will map in this series.
Module 3 showed you DAF Stacking — how a donor-advised fund erases the donor’s name from a single donation.
Module 4 showed you Entity Laddering — how a stack of legally separate organizations (a (c)(3), a (c)(4), a PAC, and one or more LLCs) changes the legal identity of the money at every rung.
Module 5 takes the move one step further. It shows you how an advocacy project can live and operate inside an existing 501(c)(3) wrapper without ever becoming a legal organization at all.
The mechanism is called Fiscal Sponsorship. In the industry it is entirely routine. Among serious operators it is one of the most useful tools on the board. For the public, it is the single most effective way to make a political project disappear from every dataset a citizen might search.
We call it the Backpack Trick. A kid without a backpack carries nothing and stands out. A kid with a backpack can carry anything inside it and nobody asks. Fiscal sponsorship is the backpack. What is inside the backpack never has to identify itself.
How it works — in plain English
A fiscal sponsorship has three parts.
Part 1 — The parent. An established 501(c)(3) organization that already has its IRS determination letter, its EIN, its board, and its 990. It exists. It files paperwork. It has a name the public recognizes or at least can find.
Part 2 — The sponsored project. An unincorporated activity — a campaign, a pop-up issue organization, a research program, a fellow, a media operation. The project has a name. It raises money. It hires contractors. It runs programs. But it is not a legal entity. It has no EIN. It has no board. It has no 990. On paper, the project does not exist.
Part 3 — The sponsorship agreement. A contract between the parent and the project. Money the public gives to the project is actually given to the parent. The parent takes a fee — typically five to fifteen percent — and forwards the rest to the project. The parent’s 990 reports the grants or expenses in aggregate. The project’s name may or may not appear anywhere on the parent’s filings. The donor’s tax deduction is attached to the parent’s EIN, because that is the only EIN in the transaction.
That is the full mechanic. Now the consequences.
Consequence 1. A citizen searching for the project on ProPublica, Candid, or GuideStar will find nothing. The project has no 990 to search. Its name may appear only as a line item — sometimes not at all — on the parent’s return.
Consequence 2. A journalist asking “who is on the board?” will be told correctly that the project has no board. The parent’s board is the board. The parent’s board may have never voted on or even heard of the project.
Consequence 3. A donor’s gift is legally a gift to the parent. The parent could, in theory, redirect the money to any other activity consistent with the parent’s mission. In practice this rarely happens, but it is legally possible.
Consequence 4. Accountability is diffused. If the project does something the public finds objectionable, the parent can wind the project down — disappearing the project entirely — without anyone ever filing a dissolution. The project did not exist to begin with.
Consequence 5. Multiple projects can live inside the same parent at the same time. One parent 501(c)(3) can host dozens or even hundreds of “fiscally sponsored” projects. The parent’s 990 will show a single organization with a single mission statement. The reality is a sprawling network of campaigns operating under one tax ID.
This is the backpack. The parent is the kid. The projects are whatever the kid is carrying. And the public — including the IRS — sees only the backpack.
The scale
Fiscal sponsorship is legal, common, and massive.
The two best-studied industry models are “Model A” (the project is wholly owned by the parent, fully integrated into the parent’s 990) and “Model C” (the project is a pre-incorporated entity and the parent acts as a grantor of regranted donor funds). Model A is the purest form of the Backpack Trick: there is no separate project at all, just a program line inside the parent’s books. Model C preserves a thin administrative seam between the two but still keeps the project off the public 990 radar.
The technique is taught at professional conferences, supported by a trade association (the National Network of Fiscal Sponsors), and sold as a service by major charitable back-office firms. It is not exotic. It is infrastructure.
Why this is the third move
Move 1 — DAF Stacking — got the donor’s name off the donation.
Move 2 — Entity Laddering — gave the money the legal identity it needed to do political work.
Move 3 — Fiscal Sponsorship — lets the project that spends the money disappear from the public record entirely.
Each move solves a different visibility problem. Move 1 hides the donor. Move 2 hides the path. Move 3 hides the destination. By the end of the third move, the entire transaction is invisible: a donor you cannot see gives money that travels a path you cannot trace to a project that does not appear on any public filing.
Subsequent moves in the series — foreign principal pass-through, Delaware LLC opacity, “educational” classification abuse — extend the Backpack Trick in specific directions. But Fiscal Sponsorship is the structural center. Once the project is inside the backpack, every other move becomes easier.
There are legitimate uses
Fiscal sponsorship was not invented to hide political operations. It is a real and useful tool.
A group of community volunteers who want to raise money for a neighborhood food pantry can partner with an established (c)(3) that already has tax-exempt status, accept donations through that parent, and run the food pantry without having to incorporate, apply for an IRS determination, hire a lawyer, or file their own 990. The parent takes a small administrative fee. The volunteers get on with feeding their neighbors. This is a clean, appropriate use.
An established arts organization may fiscally sponsor an individual filmmaker’s documentary so that grants to the film can be tax-deductible while the filmmaker retains creative control. This is a clean, appropriate use.
An emerging advocacy effort that wants to test whether it has a long-term mission before committing to the overhead of independent existence may live inside a fiscal sponsor for a year or two, then apply for its own 501(c)(3) status once it has proven viable. This is how many now-independent nonprofits were born.
The technique becomes a problem only when it is used to obscure, not to accommodate. The distinguishing signals are familiar from Modules 3 and 4: the sponsored project is primarily political; the project is bundled with dozens of others under a single parent EIN; the parent’s administrative fees substantially exceed industry norms; the project appears under one name publicly and a different name on the parent’s filings; projects enter and exit the parent’s books on election-cycle timing; and no public document explains what any given project is actually doing with the money.
This module will teach you how to look at a sponsor, see the backpack, and tell the difference between volunteers feeding their neighbors and a political operation using the parent’s EIN to disappear.
Case Study A — The Fellowship Wrapper
Source: PMC Investigation [REDACTED], supplemented by FEC filings and public reporting.
One of the cleanest examples of the adjacent mechanic to fiscal sponsorship — the use of a 501(c)(3) wrapper to house an operator rather than a project — sits inside a conservative advocacy 501(c)(3) and its affiliated Super PAC.
The public structure is standard-looking. A 501(c)(3) educational nonprofit publishes policy research and hosts fellows. An affiliated Super PAC runs election-adjacent advertising. The nonprofit’s 990 lists officers and program expenses. The Super PAC’s FEC Form 3X discloses its donors — one of which, across recent cycles, has been a well-known political megadonor whose single-vehicle PAC has contributed more than $10 million to the stack.
What does not appear cleanly on either filing is the fellow layer. In late 2025 the (c)(3) announced a new Senior Fellow — a high-profile political communicator with an existing national platform and her own large social-media following. On paper she is a Senior Fellow. In practice she is an operational asset: her appearances, platforms, and public messaging become part of the nonprofit’s program activity. The nonprofit’s 990 discloses aggregate program expense and aggregate compensation for top officers but does not itemize the work product of individual fellows. The Super PAC’s FEC filings do not mention her at all.
The donor who funded the Super PAC is traceable. The nonprofit’s top officers are traceable. The fellow’s name is public. But the arrangement that connects them — the money that flows from the donor to the Super PAC to the Super PAC’s affiliated (c)(3) to the fellow’s platform work — is diffused across three different regulatory regimes. No single filing tells the whole story, and no public document describes what the fellow is actually doing, which projects she is fronting, or how her compensation compares to her measurable output.
This is the Fellowship Wrapper: a (c)(3) uses its EIN to house a person or a project that, on its own, would have to disclose much more. The (c)(3) is real. The underlying project — the messaging campaign, the opposition research, the platform-building — is not a separate entity. It is a line inside the parent’s books, invisible at the project level.
The stack is coded red because, in practice, its advocacy has been aligned with conservative political causes. The mechanics are not partisan. The same mechanics appear on the left — and at a much larger scale.
Case Study B — The Pop-Up Factory
Source: PMC Investigation [REDACTED], supplemented by public investigative reporting (ProPublica, Capital Research Center, New York Times, InfluenceWatch).
The clearest live example of pure, industrial-scale fiscal sponsorship sits inside a family of seven aligned 501(c)(3) and 501(c)(4) organizations that are, or were until recently, managed by a single for-profit Washington, D.C. consulting firm.
Those seven nonprofits include at least four that openly use fiscal sponsorship as a core operating model. One of them is explicit about it: “New Venture Fund uses fiscal sponsorship = no separate 990 for sponsored projects.” That single line captures the entire Backpack Trick in a single sentence. Across the seven nonprofits, more than 400 fiscally sponsored projects have lived inside the network over the last decade.
These projects have names. Some of those names are nationally familiar — issue-advocacy coalitions, media campaigns, voter-engagement operations, and “pop-up” (c)(4) brands built for a single election cycle. Some of the projects take public positions on federal judicial confirmations, state-level abortion policy, Supreme Court reform, campaign-finance reform, and federal climate policy. The campaigns do real work. The work is legal. But the projects themselves do not exist as independent legal entities. They exist as program line items inside the parent (c)(3)s and (c)(4)s.
The scale is unusual by any standard. One flagship (c)(4) in this network reported $311 million in single-year revenue in 2024. Another flagship 501(c)(3) has moved more than $1 billion cumulatively through its fiscally sponsored projects. The consulting firm that ran the back office collected roughly $230 million in management fees across the network over a seventeen-year span — fees that were later the subject of a District of Columbia attorney-general inquiry into whether the for-profit firm had inappropriately self-dealt with the nonprofits whose books it managed.
None of this is a scandal in the classical sense. Most of it is disclosed on each parent nonprofit’s 990. The parent 990 discloses aggregate program-service revenue, aggregate officer compensation, and — in Schedule I — grants to unrelated organizations. The parent’s 990 does not have to disclose the names of its fiscally sponsored projects unless it chooses to. And in most years, most of the projects are not individually named on the public return. A citizen searching by project name finds nothing. A citizen searching by campaign name finds nothing. A citizen searching by 501(c) database finds nothing. The projects do not exist on paper.
This stack is coded blue because, in practice, its sponsored projects have been aligned with progressive causes. The mechanics are identical to the red-coded case above. A parent 501(c)(3) or (c)(4) uses its EIN to house a campaign or an operator who would otherwise have to disclose far more on their own. The blue network is simply larger — industrially larger. It is the same Backpack Trick, scaled to a continent.
The legal architecture
Three bodies of law combine to make fiscal sponsorship legal and opaque.
The Internal Revenue Code permits a 501(c)(3) to accept donations and then regrant those donations to a sponsored project as long as the project’s activities are consistent with the parent’s charitable mission. The code does not require the parent to enumerate every sponsored project on its 990 by name. Schedule I requires disclosure of grants and assistance to other organizations — entities that themselves file returns. Fiscally sponsored projects are not organizations. They are internal activities of the parent. Nothing on the public 990 compels the parent to list them individually.
Federal election law treats a fiscally sponsored (c)(4) project the same way it treats any other (c)(4) project. If the project makes political expenditures, those expenditures have to be reported by the parent (c)(4), which is the legal entity that made them. But the project’s donors, the project’s activities, and the project’s internal budget are not separately reported. To the FEC, the parent is the entity. The project is a black box inside the parent.
State corporate law plays only a peripheral role — most fiscally sponsored projects never incorporate, so there is no state corporate filing. A handful of fiscal sponsors require their sponsored projects to register as unincorporated associations or to register a “doing business as” (DBA) name. Most do not.
The legal architecture was designed, decades ago, to let small community groups use established nonprofits’ tax status so that every neighborhood food pantry did not have to become an independent 501(c)(3). It was not designed to house $311-million-a-year political operations. But the architecture does not distinguish. A food pantry and a national advocacy campaign look the same to the IRS if they are both fiscally sponsored projects of the same parent.
Reformers have proposed a federal requirement that 501(c) organizations with more than a de minimis level of fiscally sponsored political activity identify those projects individually on the 990. As of this writing, no such requirement has become law.
What you can do
Module 5: Citizen Action Card, Open the Backpack
This is where the Shadow Patriots section of this module picks up. The citizen action card that accompanies this article will teach you the five-minute fiscal sponsor audit — how to take any parent (c)(3) or (c)(4), pull its 990 from the ProPublica Nonprofit Explorer, and use three specific schedules to estimate how many fiscally sponsored projects are hiding inside.
The specific techniques you will learn include:
Schedule I analysis. If the parent makes grants to “unrelated organizations,” Schedule I lists them. If almost all of the parent’s program expenses show up in Schedule O (“Other Expenses”) instead of as grants on Schedule I, that is a signal that the parent is running its programs internally — often via fiscal sponsorship.
Part IX analysis. Part IX of the 990 breaks out functional expenses. A parent running many fiscally sponsored projects will show very large “Other expenses” and “Salaries” lines relative to its grant-making. That expense profile is a fingerprint.
Schedule O cross-reference. The narrative Schedule O sometimes — not always — mentions the names of sponsored projects. A keyword search of a parent’s Schedule O can reveal the names of projects the parent otherwise does not list.
Public website walk. The parent’s own website, program pages, and press releases frequently list sponsored projects even when the 990 does not. Walking the parent’s website and cross-referencing every project name against the IRS EO BMF to see whether each project has its own EIN is the most reliable way to identify fiscally sponsored operations.
By Module 8, you will be able to look at any political advocacy operation — red, blue, foreign, domestic — and read the architecture in under a minute. This module teaches you how to see the backpack.
The next move
Module 6 will cover Foreign Principal Pass-Through — the practice of routing money or direction from a foreign government, foreign state-owned entity, or foreign political organization through a domestic (c)(3), (c)(4), fiscal sponsor, or LLC in a way that avoids the disclosure obligations of the Foreign Agents Registration Act (FARA) and the reporting requirements of the Federal Election Campaign Act.
Move 3 — Fiscal Sponsorship — hid the destination. Move 4 takes the money from the destination and shows you how to make it look like it originated here even when it did not.
We will map it the same way: mechanism, scale, red case, blue case, citizen action card.
Run the audit. Post what you find. Tag us.
Shadow Patriots. Project Milk Carton. Reach one. Teach one.
Project Milk Carton is a nonpartisan 501(c)(3) public charity (EIN 33-1323547). Case Study A is sourced from PMC Investigation — forensics on a conservative advocacy (c)(3) and its affiliated Super PAC, including the Senior Fellow appointment of a high-profile political communicator in late 2025 and the FEC disclosure profile of the affiliated Super PAC. Case Study B is sourced from PMC Investigation — the Arabella Advisors network forensics, including the New Venture Fund, Sixteen Thirty Fund, Hopewell Fund, and Windward Fund, and supplemented by published investigative reporting from ProPublica, Capital Research Center, the New York Times, and InfluenceWatch. This article has passed SKEPTIC verification (Grade A), THEMIS legal review (cleared), and MINERVA OPSEC review (cleared). Evidence vault hash: see pinned comment.
Read the series: M0 “The Game You Were Never Taught” · M1 “The Tax Code That Became a Battlefield” · M2 “Reading the Map: Decoded” · M3 “The Anonymous Donor” · M4 “The Russian Doll” · Visit projectmilkcarton.org
Sources
IRS Form 990: New Venture Fund (EIN 20-5806345)
IRS Form 990: Sixteen Thirty Fund (EIN 26-4486735)
IRS Form 990: Hopewell Fund (EIN 47-4044826)
IRS Form 990: Windward Fund (EIN 46-3600232)
IRS Form 990: North Fund
IRS Form 990: Telescope Fund
IRS Form 990: Impetus Fund
IRS Form 990: American Principles Project (501(c)(3))
FEC Form 3X filings: American Principles Project PAC (C00544387), Restoration PAC (Uihlein)
IRS Form 990 Schedule I — Grants and Other Assistance to Organizations (cross-referenced across all seven Arabella nonprofits)
IRS Form 990 Schedule O — Supplemental narrative (keyword search for sponsored-project names)
IRS Form 990 Part IX — Functional expense breakouts
National Network of Fiscal Sponsors — industry standard Models A–F documentation
ProPublica Nonprofit Explorer — all seven Arabella nonprofits (trend analysis 2014–2024)
OpenCorporates: registered-agent records for pop-up (c)(4) brands operating inside Arabella parents
OpenSecrets.org: dark-money and (c)(4) political spending tracking (2018–2024 cycles)
Capital Research Center, “Big Money in Dark Shadows” (Arabella Advisors network documentation)
Capital Research Center, InfluenceWatch profiles: Sixteen Thirty Fund, New Venture Fund, Hopewell Fund, Windward Fund, North Fund, Arabella Advisors, Sunflower Services
New York Times coverage of Arabella Advisors and the seven-nonprofit network
ProPublica reporting on fiscal-sponsorship usage across the Arabella family of nonprofits
Washington Post and Politico reporting on Sixteen Thirty Fund political spending in the 2020 and 2024 cycles
District of Columbia Office of the Attorney General inquiry materials referencing Arabella Advisors / Sunflower Services management fees (approx. $230M, 2006–2023)
Congressional Research Service, “Tax-Exempt Organizations: Political Activity Restrictions and Disclosure Rules” (R40183)
Congressional Research Service, “Fiscal Sponsorship in the Nonprofit Sector” (overview)
Internal Revenue Service Exempt Organizations Business Master File (IRS EO BMF)
Trust for Conservation Innovation, Tides Center, Third Sector New England — reference comparators (established, widely used fiscal sponsors)
PMC Investigation [REDACTED]: Arabella / Sunflower Services network mapping and fiscal-sponsorship usage
PMC Investigation [REDACTED]: American Principles Project Senior Fellow appointment analysis, FEC cross-correlation with Restoration PAC and Uihlein funding pipeline