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Nov. 4, 2019, 1:52 p.m.

Meet The Salt Lake Tribune, 501(c)(3): The IRS has granted nonprofit status to a daily newspaper for the first time

It’s a big step for Salt Lake City — but also a major opening for other newspapers who might find nonprofit status a more appealing alternative than selling or closing down.

It was a “happy surprise,” Fraser Nelson said, when The Salt Lake Tribune received a letter from the IRS on Friday giving the 148-year-old news outlet nonprofit 501(c)(3) status — no questions asked.

A final verdict on whether the Tribune could become the first legacy newspaper in the U.S. to go fully nonprofit wasn’t expected until early 2020, Nelson (vice president of business innovation) and Jennifer Napier-Pearce (editor-in chief) told me. It had received approval for the parallel Utah Journalism Foundation a few months ago — also with no questions, but that was a more straightforward request. This approval opens the doors for many more commercial legacy newspapers to seek tax-deductible status and philanthropic funding — a potential lifeline for local news outlets whose owners agree to give up control.

“We argued that our business will not change and we will continue to support the community that we serve and left it open to interpretation,” Napier-Pearce said. “We figured if they do go ahead with it, our circumstance is not going to match the circumstance of local newspapers around the country. We wanted maximum flexibility so other people could tinker with this recipe for their particular needs. Our argument is we’re already doing the work of a nonprofit. We should qualify for that tax status.”

“Without a lot of feedback from the IRS, we’re grateful that we have a pretty blank slate,” Nelson said. “We want to make sure we’re making decisions that make sense for us as an institution, make sure they are in the context of the larger national [landscape] and what this means for other papers and for journalism generally.”

(They asked me to share the donate link, which will probably become very familiar to Tribune readers once the paper figures out some infrastructure questions. The Tribune also received funding from the Google News Initiative to work on these items last month.)

The Tribune announced the news this morning, just five months after it submitted its application to the IRS. (I reached out to the IRS for comment and, update as of November 14, got the full application of the Tribune and response from the IRS.) In June, we unpacked the various hoops the application would have to jump through with Nelson and media law expert Jeff Hermes, such as:

“Are you using commercial revenue streams such as advertising or subscription fees without attempting fundraising?”

The Tribune had offered up advertising as unrelated business taxable income to the IRS, meaning that it would be outside the purview of their tax deductibility, but the IRS didn’t issue any instruction on how to treat it. Subscriptions may become tax-deductible, but Fraser said they’ll have to figure out if that status would vary between digital and print subscriptions (since a print edition involves more business operations, like printing and distribution). So for now, TBD.

But the nonprofit newspaper will be able to attract a new mix of revenue streams, reliant on philanthropic giving, smaller donations from readers and supporters, and the endowment of the separate Utah Journalism Foundation. (Nelson said earlier this year that they were aiming to raise $60 million for that. Today she said she couldn’t share anything about the amount raised thus far. UJF grants will also go to other Utah news organizations besides the Tribune.)

Reminder: “Nonprofit” doesn’t mean “no business plan.” Nonprofit journalism in general has seen an remarkable boom over the past ten years, but the outlets still need to invest in their business and fundraising operations to sustain the editorial operations.

“We’ll be forthcoming about where that is but one thing that’s really important is to stress again that the purpose of this foundation is to help sustain The Salt Lake Tribune in perpetuity but also to make sure that we’re doing as good a job as we can with promoting and supporting independent journalism in the state,” Nelson said.

The Tribune also needs to detangle itself from its business relationship with the other Salt Lake newspaper, the Church of Jesus Christ of Latter-Day Saints-owned Deseret News. They’re currently part of a joint-operating agreement that strongly favors the Deseret News and will expire next year. “We’ll need to figure out what our relationship looks like, if any, going forward. But these are all really good things to deal with and to noodle over,” Napier-Pearce said.

With this change, Salt Lake City will be home to what must be the least commercially oriented local news scene in the country — two daily newspapers, one owned by a church, the other run as a nonprofit.

“Are you engaged in political activity?”

As part of this shift, the Tribune editorial board will officially step back from endorsing candidates, which publisher and owner Paul Huntsman had seemed thrilled to give up earlier this summer. (Yes, he is of the Utah Huntsmans.) The editorial cartoonist Pat Bagley will remain, as will the Tribune’s sports analysis and regular newsroom operations. “The integrity of our reporting and our values as a news organization won’t change, but we will engage with the community in new ways and ask for their support,” Napier-Pearce said in the announcement Monday.

She added to me: “We are very much a community newspaper, so our focus will always be on Utah. We’ve really changed the way we look at and define news just because of limited resources…It’s really going to depend on the generosity of our donors and the community coming together and see what we can do. My ultimate hope is to expand the newsroom, replace the reporters that we are sad we had to let go, and start to rebuild.” (The Tribune laid off more than a third of its newsroom last year.)

Over the summer, the Tribune held focus groups and is planning a listening tour to talk with its audience more directly, Nelson said.

But “political activity” — a no-no for 501(c)(3)s — can mean more than just election-time endorsement slates, Hermes had warned in June; this is the kind of item that can be very curiously interpreted. He emailed me his take Monday morning:

It remains possible, for example, that the subjects of a newspaper’s coverage — particularly political figures who are displeased by stories perceived as negative — could complain to the IRS that the paper’s reporting runs afoul of the candidate endorsements rule even though the paper does not make formal endorsements. It is worth noting that the “endorsements” rule is not limited to formal endorsements; rather, the rule in question prohibits “participat[ing] or interven[ing], directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office.” Treas.Reg. (26 C.F.R.) 1.501(c)(3)-1(c)(3)(iii). We are in untested waters with respect to how these rules apply to a nonprofit newspaper with robust political reporting. Perhaps a court would consider this “indirect intervention,” or perhaps not; it would at any rate involve a highly fact-specific inquiry based on the nature of the coverage.

(That said, while no nonprofit newspaper has engaged in “robust political reporting,” plenty of other nonprofit news outlets — The Texas Tribune, ProPublica, the Center for Public Integrity, and so on — have done plenty of work that has impacted the fates of candidates and campaigns. We’ll see.)

“Is your ownership ready for this?”

Huntsman, publisher and owner since 2016, seemed very ready in his note to readers Monday morning, referring to the market failure of local journalism: “I will not be held hostage to a broken system.”

Huntsman — part of a powerful local family, deeply embedded in the community, wealthy outside his newspaper holdings — is the most obvious sort of owner to be interested in nonprofit status. Local newspapers are currently fighting to build a profitable and commercial future, of course. But one could imagine, if their newspapers’ financials get substantially worse, that owners like John Henry in Boston, Glen Taylor in Minneapolis, Warren Buffett in Omaha, the Blethens in Seattle, or maybe even the Decherds in Dallas could see this as a path forward. It could be even more of a boon to smaller newspapers, dailies and weeklies, which are more likely to still be locally owned.

That said, don’t expect much interest from the nation’s big newspaper chains, which own an ever-growing share of the newspaper landscape.

Control of the Tribune will now go to the board of the nonprofit (separate from the board of the Utah Journalism Foundation, which will focus on fundraising) and supported by several advisory committees. There’s a placeholder board for now, Napier-Pearce said, since the approval just came through; but they hope to develop a board “that reflects who we are as Utahns. We also want experts from the industry to step forward. I don’t know exactly what the makeup is going to look like, but it will be very different six months from now,” she said.

There’s a lot to be determined. Will the new revenue enabled by nonprofit status be a game-changer or a trickle? If the mission is more squarely about journalism and community service now, does that speed up an end to print? (It’s a huge cost item in newspaper budgets, but it’s also still a huge driver of revenue.) How will the IRS respond to any challenges to the new status? Will there set off be a flood of outlets rushing to get tax-deductible funding?

The news took Media Twitter by happy surprise as well:

POSTED     Nov. 4, 2019, 1:52 p.m.
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