IRS Asked to Speed Media Nonprofit Designations by Changing 501(c)(3) Application Policy
The Internal Revenue Service should change the outdated way it considers whether media get tax-exempt status, a group of journalists, foundations and news websites said in a report that was partly backed by FCC Chairman Julius Genachowski. Rules dating from the 1970s that require organizations seeking 501(c)(3) status to primarily engage in education have led to months- and sometimes years-long delays in websites obtaining such status, said the study. Written under the auspices of the Council on Foundations and led by Steve Waldman, who wrote the commission’s study on the future of media when he was an aide to Genachowski, Monday’s report said some news websites have folded while their applications were pending. “Unnecessary obstacles seem to be getting placed in the way of nonprofit news outlets attempting to educate their communities,” Genachowski said.
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The ‘70s-era IRS consideration of whether an entity seeking tax-exempt status disseminates information in an educational way means it’s been “challenging” for the agency “to assess new digital media organizations while applying an outdated framework designed for print media,” the report said (http://bit.ly/WrnnUD). The tack “is not working,” the report said. “IRS agents have focused on what tax-exempt, nonprofit media calls ‘earned revenue,’ income” such as ads as “an indicator of ordinary commercial publishing,” it said. There has been a “recent stagnation” in such requests, after more than 500 nonprofits with journalism in their name had been deemed tax-exempt as of August, the study said. It said the Foundation Center and GuideStar, which collects nonprofits’ annual IRS filings, are researching the extent to which tax-exempt entities are media organizations.
Delays in IRS approval of 501(c)(3) designations meant the Chicago News Cooperative went out of business in February 2012 before getting such status, while the Arlington (Va.) Mercury online newspaper had been waiting for the agency to act on its August 2011 request, the study said. The Mercury is still waiting, Editor Steve Thurston told us. “But I'm close, the IRS agent working on my case says.” The Investigative News Network got a tax exemption after a 2-year wait with a condition that it remove the word journalism from its purpose in its articles of incorporation, the report said. INN CEO Kevin Davis was among the members of a working group on the report. The group also included CEO Joel Kramer of MinnPost, a nonprofit news site in Minnesota’s Twin Cities (CD Jan 11/11 p5), Knight Foundation Chief Financial Officer Juan Martinez, Benton Foundation Executive Director Cecilia Garcia and other groups that fund journalism (http://bit.ly/Vw3KJp).
"Instead of focusing on meaningless operational distinctions, the IRS should evaluate whether the media organization is engaged primarily in educational activities that provide a community benefit,” the report said. It said that’s “as opposed to advancing private interests.” The agency should also review whether an applicant is “organized and managed as a nonprofit, tax-exempt organization,” said the study. It was backed (http://bit.ly/105QwWp) by the heads of 11 journalism schools and programs, including at Columbia and Syracuse universities and the universities of California at Berkeley, Maryland, Missouri and North Carolina at Chapel Hill. The IRS had no comment.
Waldman’s report on media’s future “raised concerns that antiquated” IRS policies “might hinder innovation, and suggested that experts in this area take a closer look,” Genachowski wrote U.S. Treasury Secretary Jacob Lew of the 2011 report (CD June 10/11 p1) that spurred this study. Taking no position on tax-enforcement changes the new study seeks, Genachowski believes “the rise of nonprofit news organizations is a crucially important trend,” he wrote. “This blue-ribbon, bipartisan group has taken a careful, thoughtful approach to removing obstacles to civic innovation” that ought to be considered by the Treasury and IRS, Genachowski continued (http://bit.ly/Vw6RRL). He said the report on media’s future “documented the collapse in local journalism."
"Especially challenged” types of reporting are investigative stories requiring “lengthy” document and record searches and creating new software applications “that make government more accessible to the public,” the new report said. The last few years saw a “steep decline in accountability journalism, especially in local and regional journalism” that alarmed the journalism deans, they wrote (http://bit.ly/105QwWp). “Local online journalism has not yet developed a profitable business model, but it is almost miraculously good at giving journalists the ability to publish at low cost and at giving the public access to far more information” than ever previously available, the deans said. “The journalism the new online accountability news organizations do -- which is not undertaken to make money in the marketplace, and likely never will -- is obviously different from the more commercial forms of journalism, and deserves to be granted nonprofit status."
The Newspaper Association of America supports what the report seeks, said Paul Boyle, senior vice president-public policy. Changing rules “to support local accountability journalism is probably a good thing,” he told us. “There are a lot of different nonprofits that are trying to emerge, and working with for-profits” on journalism, he said of this time of technological “transformation.” The National Newspaper Association, though aware of the study, has no stance on it, CEO Tonda Rush told us.