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October 19 2010

16:00

Can we make journalism a tax-exempt purpose? Expanding the meaning of nonprofit journalism

[Nikki Usher has been looking into the options for news organizations under current nonprofit laws. With coauthor Michelle D. Layser, she’ll have a paper on the subject appearing in an upcoming number of the Utah Law Review. Here at the Lab, Nikki will be exploring their findings in a series of posts detailing the alternative models newspapers might consider. —Josh]

Around the country, nonprofit journalism outlets are proliferating in both citizen journalism forms and more professional renditions, like ProPublica and MinnPost. But is there room within the legal code to make journalism itself a tax-exempt purpose, rather than making them shoehorn into being an “educational” institution or some other approved category for nonprofits? The answer is maybe — and the possibilities would leave new room for journalism to actually legally define itself as a field that constitutes both legacy media and more non-traditional forms of journalism.

By adding journalism into Section 501(c) — as a tax-exempt category exempt under nonprofit law, we could protect all nonprofit organizations organized and operated to advance journalism from federal taxes. Senator Ben Cardin’s bill to establish nonprofit newspapers was dead on arrival in the Senate and House. With the struggling Baltimore Sun in mind, his goal was to make newspapers 501(c)3s and have them operate under the section’s clause of “educational” institutions.

But why limit journalism to just the category of “educational” institutions? To be clear, the 501c(3) statute from the IRS code reads:

Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition…or for the prevention of cruelty to animals or children.

The clause that bothers so many journalists is this one:

…no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation…and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

This would mean that journalists would not be able to endorse political candidates — although there is considerable debate in the legal community about whether the effect of the Supreme Court’s decision in Citizens United might provide more room for nonprofit newsrooms to endorse.

So why include journalism as a separate clause under the nonprofit 501(c)3 category? First, it establishes a special place for journalism within our tax code. It doesn’t limit journalism to traditional newspapers, and it establishes journalism apart from just being about educational purposes. Not all of what journalism purports to do is strictly educational. What about the non-serious news, or sports columns, or comics and crosswords — or even the comments sections, opinion blogs, and social media efforts of newsrooms. These activities might be stretching the term of educational.

But if we gave journalism a special place we would be protecting all journalism in its myriad forms organized as nonprofits from federal taxes. Though many newspapers aren’t paying a lot of taxes these days because they are losing so much money, nonprofit status could help. Consider the implications for profitable news enterprises — for CNN, or dare say we Fox. These organizations could become nonprofits and take advantage of federal tax breaks to reinvest in journalism. Idealistic, but it could happen. Okay — maybe not.

Further, we would also be making it easier for journalists who are not big media to avoid federal taxes. The lives of small startups and innovative forms of journalism organizations would be free from going through any kind of onerous process of proving themselves as tax-exempt through other categories. This might provide a further boost to experimentation with new forms of journalism.

The tax code could also be amended to start fresh — to make journalism its own specific form of tax-exempt nonprofit: in this case 501(c)29. This would start the idea of a journalism nonprofit fresh, free from the restrictions of past 501(c)3 rulings about endorsements, awaiting new IRS rulings and case law.

However, the rules currently governing foundations mean that a 501(c)29 that endorses candidates would be unable to receive foundation money. An exception could, technically, be carved out of these foundation rules, but that would be pretty messy and likely rejected politically. So this doesn’t get us out of the endorsement problem that so frustrates journalists.

So what are the problems? Like anything with the IRS, we’d be giving the IRS the power to define what counts as journalism. That’s a pretty scary thought, particularly in a time of evolving journalism forms. But it might be better than the alternative: continuing to force journalism into a pre-existing model of an “educational” category that may not be right to accompany the myriad forms of journalism.

Bringing journalism into the tax code would require journalists to do something they aren’t good at: lobbying for their own position. But that, of course, strikes at the heart of our changing profession. But forcing ourselves to have the discipline to define what journalism is and might be is one way to protect journalism for the future.

Photo by Jacob Kearns used under a Creative Commons license. For the record, this post represents only Nikki Usher’s views, not those of her coauthor.

September 15 2010

17:00

Government-free* nonprofit journalism, asterisk included

Here’s a test for nonprofit journalism and its stakeholders.

The following sentence comes from the “Contribute” page of a nonprofit journalism organization. What’s wrong with it?

The [organization] neither accepts nor receives any government or taxpayer-financed grants and relies solely on the generous support of our donors.

The answer is…nothing is wrong.

Ha! It was a trick question. The website belongs to a news organization that says it helps produce independent journalism and doesn’t like the idea of government supporting its work. No problem.

But in the same breath, the organization informs its potential donors: “Your donation…is tax deductible to the fullest extent of the law under Internal Revenue Service Code Section 501(c)(3).”

Now we have a problem.

The organization I am zinging here, the Franklin Center for Government and Public Integrity, believes that tax deductions for donors aren’t the same thing as government support. “Our generous contributors are not funding government support of journalism when they donate to the Franklin Center,” Jason Stverak, the group’s president wrote in an email. (Complete response below.)

Economists disagree. Charitable deductions are known within the realm of economics as “tax expenditures,” and according to Stanley Surrey, the former assistant Treasury secretary who coined the term, they’re no different than direct government spending.

“Whatever their form, these departures from the normative tax structure represent government spending for favored activities or groups, effected through the tax system rather than through direct grants, loans, or other forms of government assistance,” Surrey wrote with coauthor Paul McDaniel (emphasis mine).

The Heritage Foundation offers a similar definition. It says in part: “The word ‘expenditure’ is used to highlight the similarity between the use of the tax code to provide advantages to a select group and the more traditional method of giving the group a slice of the federal budget.”

Last month, I took WikiLeaks to task for promoting itself as a cutting-edge proponent of transparency in government while failing to disclose much of anything about its own funding and expenditures. My gripe, in a nutshell, was that WikiLeaks’ adherence to a double standard undercuts not only its own credibility, but also that of the entire nonprofit sector in journalism.

Like WikiLeaks, the Franklin Center seeks to “advance the cause of transparency in government” while it also withholds information about its own finances. But it slides further down the slippery slope when it condemns the idea of government support for journalism and then makes that condemnation a central selling point in its case for philanthropy — tax-deductible philanthropy, no less.

The Franklin Center isn’t alone. In Idaho, the Idaho Freedom Foundation, publisher of the nonprofit Idaho Reporter says this on its “Donate” page:

The Idaho Freedom Foundation relies solely on the generosity of individuals, foundations, and corporations that share its commitment to freedom. IFF does not accept any government funding. IFF is a tax-exempt organization under section 501c3 of the Internal Revenue Code. U.S. citizens will find their contributions to be tax-deductible to the extent allowable by law.

Some of the biggest names in the world of Washington think-tankdom commit the same offense. They include the Progress and Freedom Foundation and the Heritage Foundation, both of which oppose the idea of government policy changes to support journalism.

I’m not here to flog the Franklin Center or any of these other organizations for their ideology. I know from a decade of reporting on Capitol Hill that it’s darned hard to maintain one’s purity when money is involved. But those who count themselves among the nonprofit sector in journalism should walk their own talk: Tax deductions for donors are government support. Any nonprofit organization that says it “relies solely on the generous support of our donors” while also promoting the charitable tax deduction available to its donors is issuing, at best, what the late Ron Ziegler might have called an inoperative statement.

The fact is, government subsidies for journalism are everywhere. In addition to the charitable tax deduction, they include mechanisms such as favorable postal rates and revenue-producing legal-notice requirements. Geoffrey Cowan and David Westphal of USC identified these government subsidies to journalism in a report earlier this year and argued that they were intended by our founding fathers to help support a vigorous press.

If you don’t buy their argument, another proponent of the view that tax deductions constitute government support is view is Sen. Chuck Grassley. The Iowa Republican has been a tireless watchdog over the nonprofit sector, and the charitable tax deduction has been his entry point to investigations of hospitals, athletic booster clubs and other 501(c)(3)s.

So what to do in a world of ambiguity?

One solution would be for journalism nonprofits that oppose government support to refund the value of donors’ tax deductions to the U.S. Treasury. The Franklin Center recently named an advisory council that includes well-known journalists such as Tucker Carlson, and maybe that body could take up the idea at their next meeting. But I’m not holding my breath for that to happen.

Here’s another scenario: What if Grassley slipped in a legislative rider ending the charitable tax deduction for organizations involved in journalism? I bet the nonprofits mentioned above would howl like holy heck.

Perhaps the best thing would be for these organizations to acknowledge the reality of their dependence on government support and focus instead on journalism. They have a lot to contribute from their point of view, and that should be reason enough for readers to support them. Until then, a little more transparency might be in order. If journalism nonprofits want to denounce government support while promoting tax deductions for donors, they should add an asterisk and a disclaimer to their solicitations for support. It’s the transparent thing to do.

I asked representatives of several journalism nonprofits whether they thought tax deductions constituted government support. Here is the full response I got from Jason Stverak of the Franklin Center.

Our generous contributors are not funding government support of journalism when they donate to the Franklin Center. In fact, the Franklin Center strongly believes that government intervention in media will create greater problems than the struggling newspaper business is currently enduring. If government intervenes in the news industry, journalists will no longer be able to report credibly on stories that matter to the people, but ultimately only on what matters to officials. Journalists may ignore scandal and corruption for fear of losing government funds. They could become political flacks and write to appease government instead of investigating it.

Drawing the conclusion that every donation to a non-profit 501 c3 is supporting the government in some way is incorrect. Tax deductions for gifts to houses of worship are not funding government support of religion and tax deductable donations to health care associations are not supporting government healthcare.

Photo by Jacob Kearns used under a Creative Commons license.

March 11 2010

15:00

What makes a nonprofit news org legit? Three other questions to separate journalism from advocacy

Last week, Jim Barnett raised a question about nonprofit journalism: What makes it legit? How do we know if a nonprofit news outlet shares the ideals and culture of traditional journalism, and how can we make sure we don’t get fooled by advocacy groups disguised as objective journalists?

It’s a difficult question — the Internet makes publishing wide open to everyone — and at the end of his post, Barnett lays out a list of what he thinks we should use as a starting point when deciding what is and isn’t a legit nonprofit news outlet. He lists various IRS and accounting standards, a number of vague measures of professionalism, and what I’d consider an unfair standard, whether an organization is credentialed by federal or state government.

This is one place where Barnett and I disagree. Before coming to the Lab, I used to edit a nonprofit news site, The Washington Independent, where for two years I dealt with the reality of who gets considered “legit.” If you’re not, you lose out on the privileges given to traditional media outlets. Take Congressional press passes: The Washington Independent was denied admittance to both the daily and periodicals galleries because the site was not chiefly supported by subscriptions or advertising. (Our support came from donors and foundation grants.)

The Independent’s reporters are resourceful, but not having that credential sometimes put stories out of reach. When Republicans released their alternative budget in a credential-required portion of the Capitol, we didn’t get to attend. We were shut out of an event where we would have had access to ask lawmakers direct questions. Congressional credentials are the toughest to get in Washington (compared to White House credentials, or campaign plane credentials, for example) and as such are sometimes used by other groups as the standard for access. For example, when Vice President Dick Cheney spoke at the American Enterprise Institute in 2008, our reporters were not allowed to attend because they didn’t have a Congressional credential.

Legitimacy is a tough word when it comes to journalism; here I’m using it just to refer to the limited set of privileges that come with an external journalistic seal-of-approval. (Legitimate reporting can come from outlets without that seal of approval, of course, and illegitimate work can come from the biggest names in the business.) But as far as organizational legitimacy goes, I’d argue that instead of looking at a nonprofit’s structure, or vague markers of professionalism, we should think about criteria that more directly capture what a nonprofit news outlet should be.

I thought about what I thought made the Independent trustworthy, and what distinguished us from other journalism-like nonprofits that were more like advocacy groups — the ones who might use their access to lawmakers for lobbying. I came up with three questions I think distinguish a nonprofit as a legit news organization:

1. Does the nonprofit create original news or commentary on a regular schedule?

2. Does it directly reach an audience (or does it fuel news outlets)?

3. Does it spend its money on and dedicate the bulk of its resources to journalism?

Producing news

Does your organization produce news and/or commentary daily, weekly, monthly, or in some other regular interval? It’s a simple criteria that weeds out nonprofits that sporadically put out reports. It also excludes transparency groups, many of which do excellent work, but are not in themselves journalists. (To help clarify this point, imagine that instead of transparency, these groups were focused on any other topic. A searchable database is useful and interesting, particularly to journalists. However, providing access to information is not the same as producing news and commentary. It’s a service or a tool provided to allow journalists to build narratives, which is part of a broader strategy of using the media to advance their cause.)

Directly reaching an audience

I struggled to think of how to sift out a phenomenon Mark Bowden took on in The Atlantic last fall: the rise of opposition research disguised as journalism. Oppo-research has been around forever; campaigns leak dirt on the other side to reporters hungry for a quick, easy scoop every cycle. But as Bowden points out in the instance of Sonia Sotomayor, within hours of the announcement of her nomination, videos of her “wise Latina” comment were all over TV news and the Internet. Opposition research wasn’t just behind the story: It was the story. However, the Judicial Confirmation Network doesn’t reach an audience on its own. They function to fuel news organizations and influence coverage; they aren’t a news organization themselves.

I’d distinguish nonprofits like ProPublica and Center for Public Integrity from nonprofits with no direct audience. Both of these groups have established partnerships with other media to reach an audience. A public content agreement is different than leaking a salacious tidbit. And of course having a website with a loyal readership counts, too.

Putting your money where the journalism is

I borrowed this third question from my old boss and publisher of the Independent, David Bennahum. Our efforts to get Senate press credentials were denied because of our funding model of foundation grants and individual donations. Bennahum came up with the interesting idea that perhaps the gallery could look at how an organization’s money is spent, rather than how it is raised. If you’re an advocacy group with a magazine, your tax records will demonstrate that the bulk of your money is going to things other than reporter salaries or other news costs. If you’re a nonprofit dedicated to news, your spending will reflect that.

There are plenty of other questions to ask in thinking about a nonprofits legitimacy, but I think these get the conversation started. What do you think?

Photo by John Abell used under Creative Commons license.

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