The majority of journalism non-profits that attempt to obtain 501(c)(3) status claim to be "educational" in nature, because that category is generally considered to be best suited to a news outlet's purpose of disseminating truthful information to the public. [FN1] However, it is not enough that an applicant believes that it is educational in a general sense. Journalism organizations frequently fail to receive exemptions because they either (1) fail to understand the specific legal contours of the educational category, or (2) try to stretch the category to fit their business models rather than design their business models to fit the category.
The confusion that exists over the IRS's definition of an "educational" organization cannot be laid entirely at the feet of the applicants. Over the past fifty years, the IRS has followed (or created for itself) a number of tests in an effort to turn Section 501(c)(3)'s general reference to educational purposes into a workable objective standard, and the resulting analysis is multi-layered and complex. The following sections attempt to separate the IRS's definition of "educational" activity into discrete elements.
Distinguishing Education from Advocacy: IRS Revenue Procedure 86-43
One of the IRS's principal tasks in evaluating publishers claiming to be "educational" is distinguishing educational organizations from those engaged in non-educational advocacy. At one time in its history, the IRS relied upon a subjective, viewpoint-based standard set forth in the Treasury Regulations for this distinction; however, that test was ruled unconstitutional in 1980.
Without the Treasury Regulations to guide its analysis, the IRS announced that it would follow a "methodology" test. This test, instead of focusing on the viewpoint voiced by an applicant, considers the methods an applicant uses in conveying its message. The methodology test was eventually codified in 1986 in Revenue Procedure 86-43:
[Section 3].03 The presence of any of the following factors in the presentations made by an organization is indicative that the method used by the organization to advocate its viewpoints or positions is not educational.
- The presentation of viewpoints or positions unsupported by facts is a significant portion of the organization's communications.
- The facts that purport to support the viewpoints or positions are distorted.
- The organization's presentations make substantial use of inflammatory and disparaging terms and express conclusions more on the basis of strong emotional feelings than of objective evaluations.
- The approach used in the organization's presentations is not aimed at developing an understanding on the part of the intended audience or readership because it does not consider their background or training in the subject matter.
[Section 3].04 There may be exceptional circumstances, however, where an organization's advocacy may be educational even if one of more of the factors listed in section 3.03 are present. The Service will look to all the facts and circumstances to determine whether an organization may be considered educational despite the presence of one or more of such factors. [FN2]
Revenue Procedure 86-43 survived a First Amendment challenge in court, with the Tax Court ruling that the "methodology" approach does not suffer from the same issues that rendered the definition of "educational" in the Treasury Regulations unconstitutional. [FN3]
Although the methodology test of Revenue Procedure 86-43 provides a framework for distinguishing advocacy from education, it is of limited use as a generally applicable test of whether a publisher's operations are "educational." In 2006, the office of the Chief Counsel of the IRS (in a non-precedential advisory memorandum) suggested that the first three factors of Revenue Procedure 86-43 normally relate to whether an organization is engaged in advocacy rather than education, and that only the fourth factor - whether the approach in a publication or presentation considers the audience's background or training - relates to whether content is educational in nature. [FN4]
Plainly, the fourth factor of the methodology test is insufficient by itself to determine whether a publisher is engaged in educational activity. Instead, the IRS has looked to its own precedents - most significantly, Revenue Ruling 67-4, in which the agency ruled upon an application filed by an organization engaged in publishing scientific and medical literature. [FN5] In that decision, the IRS stated:
An organization ...may qualify for exemption from Federal income tax under section 501(c)(3) of the Code if
(1) the content of the publication is educational,
(2) the preparation of material follows methods generally accepted as ‘educational' in character,
(3) the distribution of the materials is necessary or valuable in achieving the organization's educational and scientific purposes, and
(4) the manner in which the distribution is accomplished is distinguishable from ordinary commercial publishing practices. [FN6]
This four-part test forms the framework for the majority of IRS decisions regarding journalism organizations. Each element is addressed on a separate page linked above.
1 Some news organizations also (or alternatively) claim to be "charitable" or "literary" in nature. Nevertheless, the IRS will usually apply its analysis for "educational" organizations to news outlets even when they invoke these other categories. The "literary" category, in particular, is poorly developed in IRS jurisprudence, and is normally conflated with the "educational" category. See Boris I. Bittker & Lawrence Lokken, Federal Taxation of Income, Estates and Gifts ¶ 100.3.8 (2011).
2 Rev. Proc. 86-43, 1986-2 C.B. 729.
3 Nationalist Movement v. Comm'r, 102 T.C. 558, 588-89 (1994).
4 I.R.S. Chief Couns. Adv. 2006-20001 (May 9, 2006).
5 A "Revenue Ruling" is a decision by the IRS in a particular case, setting forth principles of law that are binding upon the IRS in future cases. A "Revenue Procedure," in contrast, is a generally applicable statement of standards and procedures that the IRS will follow, and is not tied to the facts of a particular case.
6 Rev. Rul. 67-4, 1967-1 C.B. 121.