An important analysis of nonprofit law for newspapers
Our friend Marion Fremont-Smith at the Harvard Kennedy School has just issued an important paper on the nonprofit model in journalism. If you’re part of a news organization that is considering switching to nonprofit status, it’s definitely worth a read.
While there are plenty of news organizations operating as nonprofits, there have been looming questions around the ability of a for-profit newspaper to switch to 501(c)(3) status. There are newspapers that operate without traditional corporate ownership (like The St. Petersburg Times, owned by the Poynter Institute, or the Christian Science Monitor, owned by the church), but there have been questions about how readily an established news organization could make the switch to nonprofit status directly.
I’ve tried to understand this debate in the past, and I’ve gotten tied in knots trying to comprehend the various IRS rulings and legislative details that govern nonprofit status. (A bill introduced in March would clarify some disputes and change a few rules, but it hasn’t made much progress.) So I’m grateful to Marion for doing that work for us. Her conclusion:
…review of the law and these [IRS] rulings strongly suggests that, under existing conditions, a nonprofit newspaper could qualify for tax exemption without the need for legislation by Congress or waiting for the IRS to issue new guidelines.
This paper argues that the current economic situation of the newspaper industry warrants reconsideration of these rulings. To this end, the paper contains a description of the current laws under which nonprofit organizations can qualify for tax exemption, with special attention to the specific rulings dealing with publishing. It examines the manner in which existing rulings could be interpreted to permit daily newspapers to qualify for exemption and become eligible to receive contributions and grants from the general public.
Here’s the PDF, which I’ve also embedded below.
Joshua Benton | Oct. 19, 2009 | 11:29 a.m.
Tags: Ben Cardin, Christian Science Monitor, Harvard Kennedy School, L3C, Marion Fremont-Smith, nonprofit, Poynter Institute, St. Petersburg Times, tax law
I am puzzled about why we are arguing over this when non-profit news orgs are already in existence. How did Voice of San Diego, MinnPost, New Haven Independent get started if there’s a debate over whether they can have non-profit status? Uh, they already have it.
Josh, you wrote earlier this year that the Cardin bill was unnecessary, which struck me then as being correct. Still does.
Dan, the issue is less about the ability of new nonprofit news organizations to launch than about the ability of existing news orgs to convert to nonprofits.
In other words, yes, there can obviously be MinnPosts and New Haven Independents. But could the Minneapolis Star-Tribune and the New Haven Register become nonprofits? That’s a different question, because the IRS understandably takes a different look at a long-standing and long-profitable business that suddenly wants to be exempt from paying taxes on its revenues. With the St. Pete Times, to pull it off, they had to create an entirely separate educational institution (Poynter) to serve as parent — they couldn’t just make the St. Pete Times a nonprofit.
So, while I’m no expert on this stuff, there have been people who’ve said that a Boston Globe or a Seattle Times couldn’t just decide one day it was going to become a nonprofit. As the paper says, there were IRS rulings to that effect that are still on the books. Marion’s research argues that, in fact, they could make the conversion.