Posted on November 25, 2011

IRS Questions Tax Exemptions for Nonprofit Journalism Start-Ups

Nonprofit news organizations applying for 501(c)(3) status face long delays as the Internal Revenue Service studies whether they qualify for tax-exempt status under the Internal Revenue Code, the Columbia Journalism Review reports.

While nonprofit news outlets such as ProPublica, MinnPost, and Voice of San Diego already have received tax-exempt status, applications from the San Francisco Public Press, the Lens in New Orleans, and the Chicago-based Investigative News Network that were filed more than a year ago have been bundled together as "precedential" and sent to the agency's Washington, D.C., office for further consideration.

The IRS is flagging nonprofit news organizations because of the increase in applications since 2008 and because it has historically resisted granting newspapers or newspaper-like publications tax-exempt status, Marcus Owens, a lawyer and former director of the IRS's exempt-organizations division, told CJR. "It's conceivable that the IRS will nuance its stance," said Owens. "But I think the most likely outcome is that the IRS will just sit there."

As the 501(c)(3) statute does not name journalism in its list of "exempt purposes," nonprofit news outlets have banked on the IRS seeing journalism as an educational activity. However, the agency traditionally has taken a narrow view of activities defined as being for "the instruction of the public on subjects useful to individuals and beneficial to the community" and has tended to consider news outlets as commercial activities, CJR reports.

The delay in reaching a decision could have a direct impact on the start-ups in question. The Lens, whose tax-exempt application is being sponsored by the Center for Public Integrity, cannot receive funds from the largest funder in its region because that funder does not support fiscally sponsored organizations. "Some of these new nonprofit newsrooms could go under waiting for this," said Investigative News Network chair Brant Houston, "because it's difficult to get donations if you don't have the status."