Nonprofit Newspapers? Not So Fast, Says the IRS

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November 17, 2011; Source: Columbia Journalism ReviewThere are many nonprofit, 501(c)(3) news organizations already in existence. MinnPost, ProPublica, Voice of San Diego, National Public Radio, Mother Jones, the Center for Public Integrity, the Columbia Journalism Review, the Austin Bulldog, even videographer James O’Keefe’s Project Veritas—they’re all 501(c)(3)s (though three decades ago, the IRS initially tried to reject the tax exempt status of Mother Jones). But now the IRS has pulled back on the reins and is delaying approvals of nonprofit applications of the San Francisco Public Press (which accepts no advertising and is run totally by volunteers), the Lens (an investigative journalism site in New Orleans), and the Investigative News Network have all had their 501(c)(3) applications stalled.

Apparently, the IRS has long been uncomfortable with the notion that “journalism” is an inherently charitable activity. To the IRS, journalism sounds and feels commercial and is not enumerated as a potential tax-exempt activity in the 501(c)(3) statute. The strategy of nonprofit newspapers had been to count on the IRS accepting journalism as an educational activity, but the IRS has always had more of an academic or community benefit definition of “educational.” The expectation of newspapers that a vigorous news reporting capability is educational may not pass IRS muster.

What is likely to happen? A few possibilities:

  1. While the IRS compiles newspapers’ (c)(3) applications for the purpose of coming up with a precedential ruling, some of these not-for-profit newspapers could suffer, with donors uncertain or reluctant about making donations to entities with tax exemptions still pending.
  2. IRS could tell applicants what they could do to make their operations more “charitable” or “educational” or less “commercial.” The challenge would then be whether the IRS’s advice is practical/pragmatic.
  3. Questions about the “nonprofitness” of nonprofit newspapers might make those that already have (c)(3) status a little queasy about the strength of their charitable bona fides. It has happened before without this kind of tax status impetus, but perhaps some might eschew public charity status.
  4. Congress and the White House might consider adding a 27th category to the twenty-six 501(c) organizational types. A nonprofit category for journalism would be just as justifiable as 501(c)(13) cemetery companies, 501(c)(14) state-chartered credit unions and mutual reserve funds, 501(c)(16) cooperative organizations to finance crop operations, and 501(c)(25) title-holding corporations or trusts with multiple parents, etc.

Undoubtedly the IRS is committed to freedom of the press. It just seems to have a problem with the thought of a nonprofit press.—Rick Cohen