The IRS is stuck in a rut of its own making, and it appears Congress will have to come to the rescue. Apparently the agency has forgotten how to recognize noncommercial news organizations as exempt from tax. They have certainly done it before, as any schoolboy knows. The tax exemptions enjoyed by NPR, National Geographic, PBS, Consumer Reports, C-SPAN, etc. were acknowledged years ago and with little argument about them at the time.
So, why is it that the IRS is now sitting on the tax exemption applications of newer non-profit news organizations such as San Francisco Public Press, The Lens (New Orleans) and Investigative News Network? The legal issue seems to be that the IRS is now inexplicably reluctant to regard journalism as an “educational” activity and thereby qualify these new groups for exemption as charities under Section 501(c)(3) of the Tax Code. The mystery is compounded because though NPR may have gotten an exemption decades ago based on its educational activities, ProPublica, MinnPost, The Austin Bulldog (Texas) and Project Veritas got theirs just in the past few years. Yet, those non-profit journos are nearly identical in type to those being held in tax status limbo today. What changed?
We don’t really know. But a good guess is that the IRS now sees these emerging non-profit newspapers and online services as doing exactly the same things as commercial newspapers. This is a blinkered view because it ignores the fact that the traditional economic model of newspapers has been blown up by technology. As advertising and readership decline, for-profit editors are dropping expensive investigative journalism and coverage of state legislatures and local governments. This is the gap the non-profit news groups are attempting to fill. They aren’t covering sports, entertainment, or providing features such as comics and advice columns, or even the big local and national stories. They are not competing with the traditional news incumbents, and they are filling a demand among readers and viewers for their specialized coverage.
Another way to put it is that the free market has spoken, and it says it can no longer support journalism that does not pay for itself. Therefore, the market is responding by finding business structures that can survive economically while providing local news and investigative stories. Those structures tend to be non-profits that do not need to reward investors, and that rely on a mix of revenue streams including donations. But, as is so often the case, the law has lagged behind these market changes.
Hence, the significance of the IRS’s inaction. These new non-profits will die on the vine without donations, and donations will be hard to come by if they are not tax-deductible. While the IRS dithers trying to figure out, once again, whether journalism fits into statutory language written 60 years ago, the natural free market forces are thwarted and the public’s interest is disserved.
The solution is for Congress to save the IRS from engaging in any more definitional angst about the educational value of news reporting by creating a new section that would be numbered 501(c)(30) and be reserved specifically for journalism. Voila! Problem solved. They did it for cemetery companies, health co-ops and railroad retirees—surely noncommercial newsgathering and reporting should merit the same treatment.
A new Section 501(c)(30) reserved for journalism would also put to rest doubts about the tax status of all the existing non-profit news outlets created by the IRS’s mysterious rethinking of the law. We in-house counsel for such organizations are understandably anxious when a cherished certainty such as our tax status becomes uncertain, as it now has. With a tweak of the law, Congress can foster a new wave of journalism forms, and assure the old ones.
Bruce D. Collins is corporate vice president and general counsel of C-SPAN, based in Washington, D.C. Email him at email@example.com.