Panel urges IRS to revisit its ‘antiquated’ nonprofit rules

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 The report described the IRS’s methods of granting tax-exempt status as outdated and criticized the agency for hobbling efforts to establish new local newsrooms.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.