Interactive Guide to the IRS Decision-Making Process under Section 501(c)(3) for Journalism and Publishing Non-Profits

Welcome to the Interactive Guide

With the journalism industry in a state of flux, there are a growing number of news ventures that have elected to operate as non-profit organizations. Many of these ventures depend upon receiving a federal tax exemption from the Internal Revenue Service ("IRS") under Section 501(c)(3) of the Internal Revenue Code. However, confusion about the IRS's standards in applying Section 501(c)(3) has led to applications for tax-exempt status being delayed or denied. It has also led to criticism of the IRS as being arbitrary in its decision-making process and adverse to the journalism industry.

In 2011, a pattern of delays emerged at the IRS in decisions on the tax status of news-oriented non-profits. After speaking with some of the affected non-profits and reviewing the applicable law, we determined that there was a gap in understanding of the IRS decision-making process. This Guide is intended to close that gap.

The Guide provides detailed information regarding the standards that the IRS applies when reviewing a journalism venture's application for a tax exemption. The Guide is also available as a single document in PDF format through the Social Science Research Network.

Introduction [FN1]

In order to avoid the difficulty that for-profit news organizations can face with capitalization and profitability, many startup news outlets have elected to form as non-profit corporations. The business plan for such organizations normally depends on obtaining tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, so that they can avoid payment of corporate tax and receive tax-deductible donations from foundations and individuals (among other significant benefits).

The IRS is the United States government agency charged with determining whether applicants qualify for an exemption from taxation at the federal level.  The IRS applies the Internal Revenue Code as it is written by the U.S. Congress; although the IRS is granted substantial discretion to interpret the law, it is not empowered to deviate from the language of the law. In that regard, it is important to understand that Section 501(c)(3) contains no tax exemptions that are specifically intended to benefit journalism organizations. Put another way, the fact that an organization is intended to benefit the public by sharing newsworthy information is not by itself sufficient to obtain Section 501(c)(3) status. Rather, the IRS applies a complex set of federal laws, agency regulations and internal guidelines to determine whether an applicant meets the statutory definition of a tax-exempt organization.

While there have been controversial decisions by the IRS in particular cases, it is critical to understand that the IRS's primary duty with respect to these applications is to protect the public fisc by ensuring that only organizations that meet criteria enacted by the United States Congress are granted a 501(c)(3) exemption. Although the IRS has some discretion in applying these criteria, it does not have the authority to recognize broad new categories of tax-exempt organizations, such as news outlets.

Until and unless there is action in Congress to facilitate tax exemptions for journalism non-profits, news organizations seeking 501(c)(3) status must learn how to structure their operations to meet the existing standards applied by the IRS. To that end, this guide is intended to provide practical information regarding the standards that the IRS applies in determining whether to grant federal tax-exempt status to a non-profit organization under Section 501(c)(3).

You may begin using the interactive Guide here.

UPDATE: Our friends at Free Press have launched an excellent resource page on issues related to the IRS and journalism, including resources, policy analysis, and press and blog coverage. Please visit!

---

¹ The author wishes to thank the following individuals for their invaluable advice in connection with the development of this resource: Andrew F. Sellars, Staff Attorney, Digital Media Law Project; John Sharkey, Intern, Digital Media Law Project (Harvard Law School, Class of 2013); Marion R. Fremont-Smith, Senior Research Fellow, Hauser Center for Nonprofit Organizations, Harvard University; David S. Ardia, Assistant Professor of Law, UNC School of Law, and Faculty Associate, Berkman Center for Internet & Society; Marcus S. Owens, Member, Caplin & Drysdale, Chartered; Eric Newton, Senior Adviser to the President, Knight Foundation; and Lori McGlinchey, Senior Program Manager - Transparency and Integrity Fund, Open Society Foundations.