Report: IRS needs to change “antiquated” approach to nonprofit news startups

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Taking too long to confer 501(c)3 status to startup nonprofit news organizations not only undervalues journalism but also has stymied new approaches to community journalism when they are needed most, according to a report released today by the Nonprofit Working Group of the Council on Foundations.

The group was created by the Council on Foundations with a grant from the John S. and James L. Knight Foundation to study the impact of the IRS’s recent approach to granting nonprofit status to media organizations. The report cites the IRS’s “antiquated” methods of granting tax-exempt status as hobbling efforts to create new media outlets.

“Over the last several decades, accountability reporting, especially at the local level, has contracted dramatically, with potentially grave consequences for communities, government accountability, and democracy,” said Steven Waldman, chair of the Nonprofit Media Working Group, in a prepared statement. “Nonprofit media provides an innovative solution to help fill this vacuum, but only if the IRS modernizes its approach.”

The group pointed out five problems with how the IRS currently handles tax-exempt requests, including taking too long, undervaluing journalism and failing to “recognize the changing nature of digital media.”

The group recommended that the IRS address the problems by counting news and journalism as “educational” under tax-exempt rules. The IRS should also require that nonprofit news outfits not be structured like commercial organizations with shareholders or investors, but it should not take into account any “irrelevant” similarities to for-profit organizations. And, the group said, the IRS should focus on whether the media organization provides a community benefit instead of serving as a platform for private interests.

The report indicates that the problems date back to rules the IRS adopted in the 1960s and ’70s to deny tax-exempt status to nonprofit news organizations that “gather or distribute news in a similar way to commercial outlets.” Waldman said these rules need to reflect the changing landscape of newsgathering in the digital age.

“There must be clear rules distinguishing nonprofit and commercial media but they should be logical rules,” continued Waldman.

The group’s report is available here.

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