The IRS and User-Generated Content

As we have reported previously, the Digital (nee Citizen) Media Law Project has been following a trend in delays at the Internal Revenue Service relating to Section 501(c)(3) tax exemptions for nonprofit journalism organizations. Although there has recently been movement in the IRS, with a number of organizations obtaining their tax exemptions over the past several months, others continue to wait for decisions delayed two years or more.

One possible reason for these delays is an increase in the numbers of journalism organizations seeking to operate on a nonprofit basis, at the same time that the IRS is likely reviewing its existing precedential decisions relating to news and publishing ventures. As our guide to the IRS's decision-making process discusses, many of the key precedents that the IRS relies upon in these cases date back as far as the 1960s, 1970s, and 1980s. Given that not only the news business, but the very nature of communication, has changed dramatically in the last fifty years, it would be reasonable for the IRS to take another look at these decisions when faced with a new wave of online journalism projects.

That being said, we have recently learned of a somewhat disturbing development in this regard. At least one applicant for 501(c)(3) status has been questioned by the IRS relating to user-generated content posted to the applicant's site as follows:

Will you allow individuals to post content directly to your website? If so, will you hold the content in queue until you review it to determine whether it would constitute intervention in a political campaign?

Now, the IRS's concern about political campaigns is not all that surprising: Section 501(c)(3) and the applicable Treasury Department regulations expressly ban organizations qualifying for a tax exemption under that section from supporting or opposing political candidates. What is of more concern is the suggestion that the IRS might require a journalism nonprofit to review user-generated content for political material, and hold the nonprofit responsible for any such content that is posted.

Some online outlets moderate user comments; some do not. But holding a news organization responsible for the content of its users' posts would seem to violate 47 U.S.C. § 230, which states:

No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.

Section 230 has been applied in a number of cases to preempt liability of online intermediaries for the content created by their users, under state and federal law. (See our guide on Section 230 here.) The core limitation of Section 230 is that it does not apply to content that a website operator creates itself, or in collaboration with users, but there is no indication that the IRS's question was focused on such site-created content. There are also exceptions in the statute for violations of intellectual property law and federal criminal law, but neither would apply to whether user comments are political in nature. And while Section 230 was passed in response to concerns about liability for intermediaries and is most often applied in court cases, the text of the statute is not by its terms limited to a defense against liability.

In fact, the text of Section 230 states that the law is intended in part "to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation." (Emphasis added.) Denying tax-exempt status based upon the content that a user posts would certainly seem to fall within this category of prohibited Federal regulation, because it "treats" the "provider . . . of an interactive computer service . . . as the publisher or speaker of . . . information provided by another information content provider."

Section 230 stands for the proposition that websites and other online content hosts are not responsible for vetting user-generated content. If the IRS were to impose that responsibility as a prerequisite for a tax exemption, nonprofits would be required to operate in an entirely different regime than other U.S. websites. 

But should we care? Although it is not exactly clear why the IRS asked the applicant at issue about its review procedures, the agency is likely concerned a nonprofit news website could be used as a forum for politically-motivated user content to evade the political activity ban. Presuming that you agree with the policy behind the ban, it seems a legitimate concern.

However, user comments generally do not reflect on a site operator's motives, and so would indicate neither a lack of educational purpose nor a motive to engage in political activity. If the IRS is concerned about end-runs around the political activity ban, it can more properly focus its inquiry by asking specifically whether an applicant for tax-exempt status is collaborating with its users to generate content that violates the ban. In this respect, Section 230 (which, again, does not apply to content created in part or in whole by a site operator) in fact aligns with the IRS's interests by bringing the question back to the nonprofit's own motives and purpose.

Shifting responsibility for reader comments to news websites would place a significant burden on pre-exemption nonprofit organizations that are usually strapped for funding. This would likely force some nonprofits not to allow reader comments at all. Even news websites that are educational could therefore lose an important tool for exchanging information with their readers. By respecting the policies behind Section 230 and more narrowly focusing its inquiry, the IRS can avoid this result while still protecting the legitimate interests at stake.

Jeff Hermes is the director of the Digital Media Law Project.

(Photo courtesy of flickr user carencey under a CC BY-NC-SA 2.0 license.)


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