With a tax exemption under Section 501(c)(3) of the United States Internal Revenue Code, certain non-profit organizations can, among other benefits, (1) avoid payment of federal income tax and (2) receive donations from charitable foundations and individuals that are tax-deductible by the donors.
Section 501(c)(3) states that corporations organized and operated exclusively for one or more of the following purposes can be recognized as tax-exempt:
- public safety testing
- amateur sports
- prevention of cruelty to children and animals
The Internal Revenue Service ("IRS") is the federal agency charged with deciding whether organizations qualify for Section 501(c)(3) tax exemptions. Because "journalism" is not on this list, the IRS must consider whether a journalism non-profit qualifies under one of the eight listed categories. Those news organizations that have successfully obtained 501(c)(3) status have almost always been treated by the IRS as "educational" organizations.
Journalism organizations considering tax-exempt status should be aware that obtaining that status limits the material they can publish, the types of funding they can receive, and the disposition of their earnings. As a general matter, you might want to consider seeking Section 501(c)(3) status if your journalism venture meets the following criteria:
- Your revenue model depends primarily on public support such as foundation grants or individual donations, rather than on traditional commercial revenue such as syndication, advertising or subscription fees;
- Your venture is not affiliated with a for-profit business in any way that would allow the for-profit to control the venture's activities;
- Your venture is not directed toward earning profit for its activities, and you have a plan for directing any unexpected profits into tax-exempt activities;
- You are comfortable with limiting your personal earnings, and that of your staff, to a level consistent with operation for the benefit of the public rather than personal profit;
- Your hiring of staff and your editorial process is directed toward the selection and development of content that educates your audience, rather than covering topics of popular interest;
- The content published by your organization is directed at members of the public, rather than at a private group (such as an industry organization or fraternal order); and
- You are comfortable with limitations on your coverage of political issues, including (1) a complete ban on content that endorses or opposes political candidates, either directly or indirectly, and (2) strict limitations on your ability to support or oppose passage of particular legislation.
These limitations are far from trivial. Nevertheless, if you are able to work within these parameters, Section 501(c)(3) status can allow you to empower your community and educate the public on important issues by responding to information needs that for-profit businesses cannot afford to address.
Guide to the IRS decision-making process for journalism non-profits
Introduction to the 501(c)(3) application process
Successful 501(c)(3) applications