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.
“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.