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How the IRS treats nonprofit media

WASHINGTON — A Council on Foundations working group urges changing guidelines for granting tax-exempt status to nonprofit media organizations.  

WASHINGTON — When MinnPost was founded as a nonprofit in 2007, we applied to the IRS for 501(c)(3) tax-exempt status, and were approved — with no difficulty — within months.

Dozens of subsequent nonprofit media startups were not so fortunate. In some cases, startups waited three years for approval, and some are still waiting. The leaders of the Investigative News Network, a consortium of nonprofit media of which MinnPost is a member, have said that these delays are harming nonprofit media outlets and that some have lost grants as a result.

Even INN itself had trouble, finally getting its tax-exemption approved only after it agreed to the condition — among others — that it remove the word “journalism” from the purpose clause in its articles of incorporation. 

MinnPost and other nonprofit news media fit under the IRS category of “education,” and it seems clear that journalism about public policy is a form of public education. In fact, more than 500 nonprofits with the name journalism in their names have been recognized by the IRS as tax exempt under section 501(c)(3). But the IRS recently told a startup in Rhode Island: “While most of your articles may be of interest to individuals residing in your community, they are not educational.”

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The IRS has made other concerning statements to applicants, such as saying their application will have an easier time if they rely only on foundation grants — while the foundations that support them are simultaneously urging them to diversify their revenue streams and rely less on foundations. The IRS has questioned applicants on how their work differs from that of for-profit media — a question not asked of nonprofit hospitals, for example.

That’s why I was pleased to accept when the Council on Foundations, with a grant from the Knight Foundation, invited me last year to be part of a national working group to make recommendations to the IRS about its guidelines for granting tax-exempt status to nonprofit media organizations.  

The working group, composed of foundation executives and media leaders and scholars, has prepared a report [PDF] with clear recommendations to the IRS about how it should handle applications by nonprofit media for 501(c)(3) status. The report was conveyed to the IRS Thursday with a request for a meeting to discuss it.

I’m in Washington today for the release of the report at the Newseum and a panel discussion about it. Also participating is another journalist with Minnesota connections, Lucy Dalglish, formerly a Pioneer Press reporter who is now professor and dean, Philip Merrill College of Journalism, University of Maryland. The presentation is being livestreamed here starting at 9 a.m. Central time.

IRSOur working group recommends that the IRS take a new approach: It should simply ensure that the applicant is engaging in providing information on important public issues or the performance of public institutions and that it operates like a nonprofit — with an independent governing board and with no earnings inuring to the benefit of any private shareholder or individual. Of course, for-profit media can provide public educational benefits, we concluded, but “a nonprofit must provide public educational benefits, and be solely organized for the achievement of that mission.”

The IRS should not take into account the manner or medium by which the editorial content is gathered, displayed or disseminated; whether any fee is charged; or whether or to what degree the enterprise is supported by grants.

The working group clearly agrees that nonprofit media should be prohibited from endorsing candidates for public office. “However,” we wrote, “if a private citizen endorses a candidate on a message board hosted by a media organization, should the media organization be held accountable?  We believe it should not be.  If a website hosts op-eds from a variety of viewpoints, should that count as endorsement?  We do not believe so.”

The report concludes: “Nonprofit media plays a crucial role in helping communities get the information they need. These organizations will need to play an even greater role in the future. It is therefore essential that tax policy not inadvertently place unnecessary or inappropriate obstacles in their path to tax-exempt status.”

Joel Kramer is MinnPost editor and CEO.