What is a nonprofit news organization?

A nonprofit news organization is owned and operated for and by the public for its benefit. The number of news outlets relying on nonprofit status has grown rapidly in recent years from a few dozen to a few hundred in response to the financial pressures on traditional business models. Converting your news organization to nonprofit status can create a new, sustainable course, but it is important to understand the pros and cons of this option.

The Internal Revenue Service determines if organizations are designed and organized to fulfill a public, charitable purpose under the tax code. Nonprofit news organizations have qualified as “public charities” under the 501(c)(3) tax status because the IRS agrees that they have been established for purposes that are educational in nature. Being a public charity means that donations to your organization are tax exempt for the donor, and that the organization itself is largely tax exempt. Two important and early caveats: (1) You can no longer endorse candidates and (2) maintaining this tax status requires broad public support. In fact, a 501(c)(3) has to demonstrate that at least 1/3 of its donated revenue comes from a broad base of the public – not just one donor.

Operating as a nonprofit/tax-exempt while leveraging earned revenue opportunities means you’ll need to stay up to date on applicable tax rules. There are two main things to pay close attention to here. The first is the level of public support necessary to meet the requirements to be classified as a public charity (see the IRS’ public support test for a public charity). Talk to an accountant or read the instructions on Schedule A from Form 990 for more information on public support calculations. The second item to track is when revenue from unrelated business activities, like advertising, may be taxable and/or jeopardize an organization’s tax-exempt status (see the IRS’ info about taxes on unrelated business income of exempt organizations). Simply having taxable/unrelated revenue, such as advertising, does not jeopardize an organization’s tax-exempt status, but unrelated activities can jeopardize tax-exempt status if they become “substantial.” While there are no clear lines, if time spent on unrelated activities start to comprise more than 15% of your overall staff time at your organization, then you should consult with your tax advisor. See the rules applicable to advertising for except periodicals on page 26 of Instructions for Form 990-T for more information.

Converting to a nonprofit means you and your shareholders are giving up ownership to the community, since nonprofits don’t really have owners – they work for the public. The nonprofit board is the closest thing to an owner; the person who runs the nonprofit works for the board. The change is fundamental and it’s a one-way street. You cannot easily get assets back once transferred or donated.

As a public charity, nonprofits are required to report their activities, revenue and major donors to the IRS each year in a tax form called the 990. Each state has its own rules about charitable solicitation permits and additional public reporting. There are best practices about soliciting contracts, hiring, public access to board meetings and ethical considerations that extend beyond journalistic norms. There are complex tax considerations when it comes to Unrelated Business Income.

Even given the myriad of business decisions and possible headaches, INN believes that a public ownership model presents positive transformative opportunities for local news organizations.

Becoming a nonprofit signals and deepens your relationship with the community you serve. It allows you to seek new sources of support to expand your newsroom, and still retain income from ads, events, products and services.

It can be incredibly rewarding. Publishers who have done it describe feeling re-energized about their work, a “mind-blowing” shift in thinking, gratified by community support and excited by transforming their news outlets to ensure they prosper for a new generation of community and news leaders.

Many publishers have successfully made the shift, finding new sources of community support and strengthening both their businesses and their public service. The San Antonio Report in San Antonio, Honolulu’s Civil Beat, The Frontier in Oklahoma, and The Salt Lake Tribune, all are succeeding as nonprofits after converting from LLCs or other commercial for-profit structures. The Philadelphia Inquirer is a public benefit corporation operating under the ownership of a nonprofit. The Fairbanks News-Miner and Kodiak Daily Mirror in Alaska are daily newspapers with similar setups.