News and analysis
October 13, 2011

Nonprofit News Outlets Face Long Waits for IRS Approval

When SF Public Press, a nonprofit news organization in San Francisco, applied to the Internal Revenue Service for a tax exemption in January 2010, its founder, Michael Stoll, thought the bid would be a “slam dunk.”

He says he had studied IRS rules, and his group seemed to fit all of the federal requirements of a charity: It publishes only public-interest journalism, does not endorse political candidates, operates mostly with volunteers on a shoestring budget, and does not accept advertising or resemble a commercial operation in any other way.

“We’ve played it by the book,” he says.

SF Public Press­ was started by journalists to fill what they saw as a void in serious local reporting as financially strapped for-profit newspapers have cut back coverage.

But it has been waiting more than 21 months to get an IRS decision.

Waiting for Word

It is not the only nonprofit news operation in that situation. The Lens, an online investigative newsroom in New Orleans, says it applied for charity status more than a year ago and has still not received word.

And the Investigative News Network, a membership group that represents 60 nonprofit “watchdog” media outlets, has been waiting since July 2010 to hear whether its application has been approved.

Brant Houston, the Investigative News Network’s board chairman, says he fears the delays could slow down a journalism movement that is “supplying some of the best investigative work and public service work in the U.S.”

Extra Scrutiny

All three organizations say the IRS told them their applications had been “bundled” with others from nonprofit publishers and were under review by the agency’s chief counsel.

Steve Beatty, managing editor of the Lens, says the tax agency told his group it was giving the applications extra scrutiny because of their “precedential” nature—that is, theywill lead to guidelines that would apply to similar organizations.

“We’re a new creature appearing before the IRS,” he says. “They’re trying to determine how to handle other nonprofit newsrooms that come before them.”

Laura Kalick, a nonprofit tax lawyer in Bethesda, Md., says a simple application for charity status can be approved in as little as seven or eight weeks, while applications that prompt the IRS to ask multiple questions can take from nine to 12 months.

However, when the tax agency considers a category of applications as a potential precedent, it can take even more time.

“They don’t want to blow it and let something slip through the cracks,” she says.

An IRS spokesman said he could not confirm that the agency considered the cases as precedents but said the IRS was handling them at its Washington headquarters.

“We’re working them centrally to ensure consistent treatment,” he added.

The nonprofit news groups, meanwhile are growing impatient. They say the lack of charity status causes administrative headaches and hinders their ability to raise money.

The organizations cannot accept foundation grants or tax-deductible donations.

Instead they must line up other charities to accept donations for them—and some have to give a percentage of their revenue to those organizations. In addition, some foundations are wary of giving money to so-called fiscal sponsors, which accept money on a charity’s behalf.

Debating the Rules

The John S. and James L. Knight Foundation, which has given millions of dollars to nonprofit digital-news operations, is also concerned about the IRS delays. But the foundation sees them as part of a broader question of whether today’s legal structures, which are geared to “industrial-age journalism,” need to be updated, says Eric Newton, senior adviser to the president.

Knight this month awarded a $200,000 grant to the Council on Foundations to study whether tax laws and rules should be changed to stimulate nonprofit news media and make it easier for them to attract philanthropy.

The Federal Communications Commission recommended such a study in a report it issued last summer.

The commission said IRS rules governing charities don’t always fit media companies well.

The news operations that are waiting for IRS action are “capable of dealing with the specifics of individual cases on their own,” Mr. Newton said.

But, he added in an e-mail message to The Chronicle, “what they don’t have are the resources to pursue a major study of the underlying situation. That’s what we’re helping with.”