How the IRS is killing nonprofit media

This article appeared earlier at The Huffington Post.

Outrage over the Internal Revenue Service’s targeting of Tea Party and other right-wing groups continues to boil — yet a potentially more consequential IRS practice has scarcely gained any attention.

Over the past few years the IRS has virtually stopped approving 501(c)(3) status for nonprofit news organizations. Given the well-documented decline of traditional for-profit newspapers, nonprofit journalism can be a vital alternative, especially at the local and regional levels. But even when applications for 501(c)(3) status aren’t rejected outright, they are stacking up, unacted upon, for months and even years.

A recent Council on Foundations report titled “The IRS and Nonprofit Media: Toward Creating a More Informed Public” put it this way:

There is significant anecdotal evidence that the IRS has delayed the approval of nonprofit media, potentially slowed the development of those already created, and harmed communities by leaving them without essential coverage, due to the application of archaic standards.

Starting in the middle part of the last decade, a number of nonprofit entrepreneurs launched community websites that were built roughly on the public radio model, funded by grants, sponsorships and contributions from readers. Gaining 501(c)(3) status allowed donors to make make those contributions tax-exempt.

In researching “The Wired City,” my book on the New Haven Independent and other community news sites, I was struck that nearly all of the best-known nonprofits — the Independent, Voice of San Diego, MinnPost, the Texas Tribune, the Connecticut Mirror and others — had been started during the same time period, from 2004 to 2009.

“There was an initial bubble of nonprofit start-ups, but you haven’t seen that great wave spreading across the country,” Andrew Donohue, the then-editor of Voice of San Diego, told me in 2011. He saw that as potentially a good thing — a sign that journalists were trying a variety of models, for-profit as well as nonprofit. Since then, however, it has become increasingly apparent that the IRS is a principal agent in stifling that great wave.

Consider some of the consequences of the IRS’s actions and inaction:

• In February 2012, the Chicago News Cooperative went under, in part because of its inability to obtain 501(c)(3) status from the IRS, as Ryan Chittum reported in the Columbia Journalism Review.

• Because the IRS does not consider journalism to be among the educational activities covered by the 501(c)(3) rules, the agency told the Investigative News Network to remove the word “journalism” from its articles of incorporation. The INN complied and won approval, according to an article about the Council on Foundations report by Justin Ellis of the Nieman Journalism Lab.

• In a similar vein, according to the report, the Johnston Insider of Rhode Island received a message from the IRS telling it: “While most of your articles may be of interest to individuals residing in your community, they are not educational.” Because of that and other reasons, editor Elizabeth Wayland-Seal announced that she was suspending publication.

What adds to the absurdity of the IRS’s stance, as the report notes, is that we are already accustomed to relying on nonprofit, tax-exempt media for much of our news and information — not just from community news sites but from long-established outlets such as NPR and local public radio stations, “The PBS NewsHour” and magazines such as Mother Jones, Consumer Reports and National Geographic.

Here is how the media-reform organization Free Press, which has assembled a useful repository of information about the IRS and nonprofit news, describes the problem:

Nonprofit journalism is not a silver bullet for the future of journalism. But fostering a more diverse media system is. If the IRS decides against allowing nonprofit status for newsrooms, it will essentially be arguing that all journalism should be done for profit. The problem is, the market has shown it will not support the full extent and diversity of news and perspectives we need.

Four years ago, U.S. Sen. Ben Cardin, a Maryland Democrat, proposed a bill that would have allowed newspapers to become nonprofit organizations. At the time it struck me as superfluous. Now it appears that it warrants another look — not just for newspapers, but for other forms of media as well.

Absent legislation, President Obama should appoint a new IRS commissioner who understands that providing quality local journalism is indeed the sort of educational activity that should be covered by the provisions of 501(c)(3).

At a historical moment when it has become increasingly difficult for the traditional media to provide the information we need to govern ourselves in a democracy, the IRS shouldn’t stand in the way of promising alternatives.