Development

Panel urges IRS to revisit its ‘antiquated’ nonprofit rules

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Delays in conferring 501(c)3 status to startup nonprofit news organizations have stymied development of new models for producing community-based journalism, exacerbating the shortage of locally produced news coverage, according to a report released March 4 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 Internal Revenue Service’s approach to granting nonprofit status to media organizations. The report described the IRS’s methods of granting tax-exempt status as outdated and criticized the agency for hobbling efforts to establish new local newsrooms.

“Our main finding is that the IRS is relying on antiquated rules — rules that were created in the 1960s and 1970s to determine whether groups should be given tax-exempt status,” said Steven Waldman, chair of the Nonprofit Media Working Group. “Not surprisingly, they don’t match modern realities.”

The group recommended several fixes to the IRS, including that it revise its criteria determining nonprofit status to qualify news and journalism as “educational” under tax-exempt rules. It also recommended that the IRS prohibit nonprofit news organizations from sharing ownership with shareholders or investors.

Programs/Content

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.

Development

Delays by IRS put chills on news startups

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Nonprofit news outfits that have sprung up across the country to fill gaps left by commercial media have hit an unexpected barrier in establishing themselves as providers of local news and information: the Internal Revenue Service. As many as a dozen journalism startups, most of them run largely by volunteers and accepting no advertising, have had their requests to be recognized as tax-exempt organizations delayed for many months and, in some cases, years.

Development

Policy delay of nonprofit status spikes Chicago News Cooperative

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Rumors started quickly, trying to explain why the Chicago News Cooperative was closing. The Internal Revenue Service had rejected the co-op’s application for nonprofit status. Then it was said that the MacArthur Foundation had refused to fund the startup out of fear it might take down City Hall friends. The truth was more prosaic. Several events — its tax status, its inability to lasso a deep-pocket donor and the demands of its publishing partner the New York Times — moved the news co-op to suspend operations Feb.