Report: IRS approach to nonprofit journalism needs to be modernized

The IRS’s ground rules on giving news organizations tax-exempt status need to be modernized, a new report found.

The report from the Council on Foundations (COF) found that local news media groups seeking to become tax-exempt have faced delays and even rejections in recent years, something the study says could stifle local coverage of important issues. 

According to the new analysis, the IRS’s approach to distinguishing between for-profit and nonprofit media groups has not kept up with the changes in technology and how news is distributed or consumed.

The report says, for instance, that nonprofit media groups must distribute their content in a way that is different from “ordinary commercial publishing practices.”

The problem with this approach, the Council on Foundations said, is that “the distribution methods for all forms of media, whether for profit or nonprofit – newspapers, magazines, television, radio, charitable and private — have converged and may be identical.”

“Instead, the IRS should evaluate whether the media organization is engaged primarily in educational activities that provide a community benefit, as opposed to advancing private interests, and whether it is organized and managed as a nonprofit tax-exempt organization,” the report said.

The report also says that the IRS needs to streamline its review process for news groups seeking tax-exempt status, noting that some cases have taken as long as three years to decide.

COF added that the IRS has at times ruled that journalism is not educational, an approach it says undervalues journalism, and that the agency’s focus on business practices has likely confused media entrepreneurs at the local level.

Steve Waldman, a former senior adviser to the chairman of the Federal Communications Commission, chaired the group that crafted the report. The FCC had issued a 2011 report saying that the decline in local reporting would potentially have adverse effects for communities.

---