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.”

The idea of the IRS ruling raises obvious First Amendment issues. Nonprofit news organizations are prohibited by the IRS from endorsing candidates and face restrictions on pushing for legislation. That the agency effectively decides whether a press outlet can exist or not is a problem. The Mother Jones incident, coming as it did at the start of the Reagan administration and accompanied by scrutiny of other left-wing publications, raised questions about political interference at the time. And there’s something unseemly about the tax man telling a news outlet to remove the word “journalism” from its mission statement.

What’s needed to ensure a stable future for nonprofit news is for Congress and the President to approve a new part of the 501(c) statute that specifically exempts non-commercial journalistic organizations. It already has for other important American institutions, like labor unions and pension funds. It’s also carved out specific exemptions for activities that aren’t enshrined in the Constitution: 501(c)(7) for social and recreational clubs and 501(c)(13) for cemetery companies. Steven Waldman, in his “Information Needs of Communities” report for the Federal Communications Commission this summer, raises a new category as one solution for the questions surrounding nonprofit news.

If congressional action isn’t forthcoming, political pressure on the Treasury Department could facilitate a favorable ruling, Owens says. Litigation is also an option, though it’s one that would require backers with deep pockets. A suit could cost seven figures and the nonprofit news outlets obviously can’t afford that.

Until then, the future of nonprofit news will depend in no small part on deliberations in the Washington office of the IRS.

Further Reading:

The Chronicle of Philanthropy: Nonprofit News Outlets Face Long Waits for IRS Approval.

The Nonprofit Times. Backlog, Precedent Stall Tax-Exempt Status of News Groups.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.