“There have been extraordinarily arduous and far-reaching and we think overreaching requirements,” Davis says. “The IRS has preemptively suggested that we modify our procedures, change our policies, and modify our articles of incorporation to remove the word ‘journalism’ because that is not a charitable cause.”
Because the press isn’t specifically named in the 501(c)(3) statute, nonprofit news organizations have banked on the IRS considering journalism an educational activity, which is one of the tax-exempt activities specified. But the agency has historically taken a somewhat narrow view of what is educational. News has to be for “the instruction of the public on subjects useful to individuals and beneficial to the community,” according to the IRS, and it doesn’t apply to as much journalism as you might think.
“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,’” Owens says. “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 recent years, Owens represented a group, which he declined to name, that wanted to turn a small-town newspaper into a nonprofit and focus more on civic issues than on day-to-day news.
“If ever there was going to be a place for IRS to narrow their historical view, this was a good option,” Owens says. “But the IRS wasn’t going to go there and eventually the organization just gave up.”
This isn’t the first time the IRS has eyeballed nonprofit news. Thirty years ago, the IRS told Mother Jones it was revoking its tax-exempt status because it couldn’t tell why it was different from a commercial publication, as CJR wrote at the time. The IRS later reversed itself, but didn’t commit to a precedent on how to determine a journalistic organization’s tax status.
Mother Jones, at least, took ads and sold subscriptions. SF Public Press, INN, and The Lens do not (Beatty says the IRS had questions about its relationship with the local Fox affiliate, which housed the small organization and partnered on some stories. The Lens now pays rent).
By stalling approval for new nonprofit news outlets, the IRS is making it harder for them to get past the startup stage and fill the coverage gaps left by weakened for-profit newspapers. But it’s difficult to quantify the damage, says Michael Stoll, San Francisco Public Press’s executive director. “A lot of funders see you in a very different light if you have not passed that milestone of becoming your own independent organization. It’s also more work for them to research you to make sure you’re doing the right thing. I suspect were going to lose a lot of money because of this.”
The Lens, which is fiscally sponsored by the Center for Public Integrity while it awaits approval, faces a particular challenge. The largest foundation in New Orleans, Baptist Community Ministries, won’t give money to fiscally sponsored organizations.
Brant Houston, the Knight Chair of Investigative Reporting at the University of Illinois sees the difficulties firsthand as chairman of the Investigative News Network but also through the struggles of its prospective members. “Some of these new nonprofit newsrooms could go under waiting for this, because it’s difficult to get donations if you don’t have the status,” he says.
For El Paso’s Newspaper Tree, the IRS delays mean that it doesn’t publish at all. The El Paso Community Foundation bought it after its for-profit owner went under intending to run it as a nonprofit watchdog in a community with weakened institutional journalism.
“People have called clamoring for it: ‘Where is Newspaper Tree? We need it, we need it,’” says Eric Pearson, the foundation’s president. But its lawyers have advised the foundation not to publish the paper, which it estimates would cost it about $200,000 a year to run, until it gets its tax-exempt status.
While it’s certainly possible that the IRS could rule in favor of all these pending nonprofits and even establish an official precedent that would clear the path for future publications, Owens, the former head of the IRS’s exempt-organization division, isn’t optimistic. “It’s conceivable that the IRS will nuance its stance,” he says. “But I think the most likely outcome is that the IRS will just sit there.”