February 22, 2012; Source: Columbia Journalism Review

A few days ago, NPQ reported on the announcement by the Chicago News Cooperative (CNC) that it would be suspending its operations. As reasoning, it put forward that its inability to get tax-exempt status had interfered with the MacArthur Foundation’s willingness to fund the effort. We reported this although we knew that it was somewhat thin as an explanation. Geoff Dougherty, writing for the Chicago Current, has characterized MacArthur’s turn-down this way:

“As excuses go, MacArthur’s is the nonprofit version of ‘I have to wash my hair.’

After spending years dealing with foundation executives, tax lawyers and the IRS, I can tell you this: If the president of the MacArthur Foundation wants to give you half a million dollars, he’s got enough lawyers to find a way to do it legally, whether it’s as a grant, a loan, a program-related investment or a happy birthday present.”

We would tend to agree. In an interview with Michael Miner, CNC Editor James O’Shea explained, “McArthur’s legal counsel said, ‘You have a relationship with (fiscal sponsor) WTTW but they don’t exert any legal control and I don’t think that will pass muster with the IRS. So we won’t support you.’ Our counsel totally disagreed with him. What this means is that they’d continue to support us with program-related investments, but the reporting requirements are onerous, the totals are usually far smaller, and the penalties are severe—foundation executives can be personally fined.”

NPQ may not be completely convinced that this is the whole story, but we do know that some foundations are sticklers for certain of their rules and CNC is hardly alone in suffering through the IRS’ delay in approving journalism as a legitimate nonprofit activity. The IRS has been sitting on all such applications since they began to get more in 2009. This caused the IRS to “bundle” them and send them for review as a category of nonprofit activity. The question about whether journalism could be deemed a nonprofit endeavor is not new, despite the fact that many nonprofit publications have existed for decades. Examples include National Geographic, Mother Jones, and even the Columbia Journalism Review, from which we sourced this post. Apparently Mother Jones was threatened with revocation thirty years ago on the basis that the IRS could not see a distinction between it and a commercial publication, but the current delays seem to have been sparked by volume—at least on the surface.

Marcus Owens, who used to direct the IRS’ exempt organizations division, describes the line that the IRS may be struggling with: “The IRS has a longstanding position that a regular-news newspaper is not educational—that there has to be something more… it hasn’t articulated it, but I suspect the word would be ‘academic’…Something like Foreign Affairs is tax exempt because it’s educational, whereas a regular-news newspaper is going to report what happens but without any intent to educate the reader. A regular-news newspaper, typically one that carries advertising, looks and feels like a commercial activity, and the IRS is sort of locked into that.”

In that more and more nonprofit news sites are being explicitly organized for civic education and engagement purposes, the use of revenue streams as the deciding factor seems inadequate as a screen. After all, there are many other fields in which nonprofits and for-profits coexist with similar revenue mixes. –Ruth McCambridge