The future of nonprofit news organizations has hit an unexpected roadblock in the agency that determines their tax-exempt status: The Internal Revenue Service.
Nonprofit news organizations applying for tax-exempt status are running into long delays as the IRS bundles them together as “precedential” and studies whether they qualify for the status under 501(c)(3). While animal protection and “fostering national or international amateur sports competition” are tax-exempt activities listed in the 501(c)(3) statute, journalism is not, and the agency’s historical position has been that newspapers or similar publications are commercial enterprises.
Consider the San Francisco Public Press.
The newspaper doesn’t accept advertising. It’s run by volunteers and has no salaried employees. It covers local public policy issues and eschews sports, entertainment news, and restaurant reviews. It loses money and is subsidized by donations and foundation grants.
But the IRS got the paper’s application nearly two years ago and still hasn’t given it an answer.
At least three other nonprofit news startups are also caught up in yearlong IRS delays, making the odds faced by the fledgling publications even longer.
And one former director of the exempt-organizations division at the IRS says the agency seems to be leaning toward the position that traditional news doesn’t qualify as a tax-exempt activity.
An IRS spokeswoman won’t comment on what exactly the agency is reviewing or how long it might take to issue its determination, but says nonprofit-news applications “have been centralized for consistency and are being worked in our DC office.”
As Steve Beatty, managing editor of New Orleans investigative startup The Lens, which applied more than a year ago, puts it, “We’ve been told our application will be reviewed up to the right hand of God.”
For decades the newspaper industry’s fat profit margins funded the bulk of the country’s local and investigative reporting. But with the implosion of its business model over the last several years, journalists have looked for other ways to sustain the kind of public-interest reporting that has been lost.
Journalism thinkers and doers have looked to nonprofits as a way to fill in the gaps left by dwindling newspaper staffs. If good journalism is going to lose money, the theory goes, then tax-deductible donations might make up the difference.
San Francisco Public Press applied for tax-exempt status in January 2010 and expected its approval would be a pro forma affair. The paper got a fiscal sponsor, a nonprofit organization that acts as a kind of tax-exempt bridge for nonprofits-in-waiting, and set to work covering beats like transportation, housing, and homelessness, while also collaborating with other nonprofit news organizations like KQED, one of the biggest public broadcasters in the country.
But after months of delays, the IRS bundled its application together with sites like The Lens, which has been told by the agency that they are being considered precedential.
That’s confusing because there are dozens of nonprofit news organizations already approved by the IRS, many of whom have been tax-exempt for decades.
ProPublica, MinnPost, and Voice of San Diego have gotten widespread attention and acclaim in the journalism industry in recent years.
But National Public Radio has long been a nonprofit, as have National Geographic, Mother Jones, Consumer Reports, The American Spectator, the Center for Public Integrity, and this magazine, the Columbia Journalism Review.
Investigative outlet The Austin Bulldog applied in August 2009 and got its IRS approval six weeks later. Conservative provocateur James O’Keefe III’s Project Veritas, famous for taking down ACORN and for using dubious journalistic practices (which in one case landed O’Keefe a misdemeanor conviction), applied well after two of the delayed nonprofits but the IRS approved its application several months ago, something that irks the straight-journalism practitioners.
“It’s frustrating to know that we’ve been hung up on this. I kick myself thinking about what if I had applied a few months earlier,” Beatty says.
The burst of activity in nonprofit news in 2008 and 2009 caught the attention of the IRS, says Marcus Owens, a lawyer with Caplin & Drysdale who used to direct the IRS’s exempt-organizations division that decides who gets 501(c)(3) status. The agency processes tens of thousands of nonprofit applications a year from its Cincinnati office. Most are routinely processed in two to three months, but some with novel issues are bundled together and sent to Washington for further study. The IRS flagged nonprofit news because of the increasing applications and because it has historically resisted giving newspapers, or publications that seem like newspapers, tax-exempt status, Owens says.
While journalism is sacrosanct for constitutional purposes, it’s not to the IRS, which doesn’t necessarily consider it a tax-exempt activity. Kevin Davis found that out when he applied in July 2010 for nonprofit status for the Investigative News Network, an organization he runs that represents sixty nonprofit news outlets.