What does it mean — and what does it take — to convert a for-profit news outlet to a nonprofit organization?
INN’s Quick Guide to Converting a For-profit to Nonprofit News Outlet aims to help publishers figure out the challenges and opportunities presented by restarting their news business as a tax-exempt 501(c)3 corporation. This practical guide provides expert insights into the conversion process — with tools and resources for further exploration — and raises many questions for publishers, such as:
This guide was written for the Institute for Nonprofit News by Kate Butler, a business writer and news manager, and Fraser Nelson, former vice president of business innovation at The Salt Lake Tribune. Today, Kate serves as the head of editorial product and engagement at Adweek and Fraser is the co-founder and managing director of the National Trust for Local News.
This guide was published in 2021 and has not been updated.
Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Case Studies
Welcome to an exciting movement: the nationwide effort to save civic journalism through nonprofit news organizations. Becoming a nonprofit news outlet is one proven and successful strategy for preserving news in the face of changing economics that have seen nearly two thousand newspapers shut down in recent years.
This guide is intended as a quick overview for those exploring this path, whether you are a publisher or a civic or business leader seeking to preserve a trusted news outlet. It should not be considered legal advice. We encourage you to consult your state law and work with legal and financial advisers. We hope it is helpful as a kind of extended FAQ to help you get started and find resources.
This guide is brought to you by the Institute for Nonprofit News, which supports and advances the growth of more than 300 nonprofit news organizations in the U.S. and Canada.
This guide may be useful to national news outlets but focuses largely on local news, as family owners and locally run weeklies and dailies are exploring their options: Would converting to a nonprofit give their communities a way to sustain local reporting? Would it give owners an exit strategy that preserves the legacy of their newspapers and their dedication to their readers and communities?
We want to acknowledge that dedication, and to thank those of you who are publishers for the extraordinary steps you’ve already taken to preserve your newsrooms in the face of a global market shift in media. We understand and appreciate that the challenges to supporting good local journalism go far beyond an issue of digital transformation. Even the most dedicated newspaper owner, the savviest publisher, is navigating a global shift in the economics of advertising and journalism. Simply put, in most markets, news has ceased being a commercial business and is now something a community should look at as a public good – like our roads, our libraries, our local schools and hospitals, newsrooms are now a civic asset, and we as citizens are finding new ways to support the news we need.
An exciting part of this emerging movement is the recognition that local news is a civic rather than commercial enterprise. These are institutions the community relies on, and in turn, news organizations are turning to their community for financial support. The number of nonprofit news organizations is growing exponentially. Community leaders, readers and journalists realize local news is key to healthy, vibrant, engaged communities and thus merit philanthropic support. Publishers and community leaders are finding common interest in not only keeping their trusted newsrooms alive, but in ensuring their long-term public service role. And no matter your role – as a publisher, reporter, reader or foundation – we welcome you to this conversation.
While there are several legal structures to consider, including a Public Benefit Corporation, a subsidiary entity owned by an existing charity, ownership through a nonprofit association, trusts, or hybrid for-profit/nonprofit partnerships, this guide focuses on a traditional nonprofit corporation exempt as a charity under 501(c)(3).
The guide outlines the main considerations and next steps for publishers thinking of converting to nonprofit 501(c)(3), with tools and resources for further research. If you are starting a nonprofit news organization, INN can assist as well – but this guide is a short, and we hope an informative, overview of the major considerations involved in taking an existing newspaper and turning it into a public charity. It is not meant to be comprehensive, but links to many resources that can help you dive deeper into important topics.
This guide is written for you, and the Institute for Nonprofit News is here to help. We believe in what you do and wish you the very best in exploring ways to strengthen and sustain your news.
— Sue Cross, Executive Director & CEO, INN
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.
It is important to have positive reasons to pursue nonprofit status, beyond a hoped-for exit strategy from a failing business. Many publishers are inspired to explore nonprofit options because of the market shifts that have made running for-profit news businesses terribly difficult. That is understandable. But nonprofit status is not a silver bullet and you still need to find a way to make the business sustainable.
Here are some questions that others found helpful to consider early in the process.
Above all, please be aware that becoming a nonprofit news organization is transformation on all levels and is a big lift. The business model, ownership and governance changes. The relationship between the community and the reporting and editorial staff changes. Advertisers and subscribers need to understand and support these changes as well. This guide can help you identify places where such a transition is likely to have the biggest impact on your current model, and areas where you will need to weigh your capacity to make these changes.
It’s critical to lay the groundwork for fundraising and community governance immediately. Why?
Fundraising: Some localities have a community foundation established to support organizations that serve the common good, and are a source of grants and assistance to new nonprofits. You can work with a local community foundation to start a fund for local journalism that you can tap once you establish your nonprofit, and they can let their donors know of your plans. The national Council on Foundations has a tool to find the nearest of 750 community foundations across the nation.
Employee outreach: Reporters are trained to sniff out big changes before they are announced. Be upfront with your employees about the change you are considering, and get their input and buy-in early.
Community Outreach: Involve your community! Time invested in market research and soliciting community and reader input pays off in readership, financial support and community impact. Encouraging conversation about your upcoming change starts spreading the idea that you’re a community resource that needs community support.
Governance: As you get started with community outreach, you’ll want to build an advisory board of backers and evangelists, people who will help you sell the change, introduce you to potential patrons, advise during the transition, and help you connect with the nonprofit business community in your area. It may include a mix of short-term advisers and those you would like to have as ongoing board members. A minimum of three board members is required for the filing of your nonprofit (the 1023 application and other documents) but eventually you will need more to have diverse and committed community members willing to do the work of creating the nonprofit and taking over the for-profit.
State-specific legal concerns: Most states have a nonprofit association that offers a wealth of knowledge and can tap you into a new network that you’ll need. They can help ensure you comply with state laws, and help you find nonprofit expert advice in accounting and law. They often have discounts for services you will need. Find your state association through the National Council of Nonprofits.
Charity registration: Most states require you to be registered as a charity if you solicit or receive donations from that state, regardless of where you are based. You will want to register before you add a donate button to your website, newsletter or otherwise start seeking charitable donations. More information is found below.
Membership: Even with a subscriber base, nonprofit newsrooms often rely on revenue from membership programs or “reader revenue” campaigns for donations and support. See Membership Puzzle Project’s Membership Guide for ideas on how to get started with a membership program.
The national group Lawyers for Reporters is dedicated to providing pro bono legal services to foster civic awareness, government accountability, and democratic engagement. (INN offers legal referrals and membership makes legal resources available for a reduced cost.)
The board is the soul of your nonprofit and crucial to its success.
For a new nonprofit, creating a founding board is a critical early step. Three members is the minimum required by the IRS, but it often is advantageous for startups to build a bigger board to include a range of skills, connections and community roles. In the early stages, a small group of strongly committed individuals who have the available time to get the organization established, and who are able to make decisions quickly can be most effective. No matter the size of this initial group, its members should reflect a diversity of political and lived experiences. It is also helpful to have pro bono legal counsel on the board at this stage. Some of this early group may be involved only through startup while others remain board members.
The biggest shift for many publishers converting to a nonprofit is understanding that they are no longer sole decision makers. The board does that now. And the board needs enough independent directors to have a quorum on votes concerning the business. Board members who are founders, executives, or other insiders may have to recuse themselves from votes that present conflicts of interest.
The functions of the board in a nonprofit are to oversee its fiduciary and legal duties and guide its mission, strategy and the hiring and evaluation of the executive. Boards also may take on operational stafflike roles, particularly in startups, but most generally evolve toward fundraising and strategic roles.
If you are currently the publisher or owner of a for-profit news organization, your role will change dramatically once you become the executive director of a nonprofit. You are no longer the owner; you lead the organization and report to the board. The board is collectively the trustee ensuring that the nonprofit meets its public service mission. It holds ultimate financial and legal responsibility for the organization.
A crucial step in board formation is a skills inventory, which maps out what and who you need on your board. Nonprofit boards are strongest when they reflect the full diversity of a community in terms of race, ethnicity, gender, geography, sexual orientation and identity, political party and faith, age and economic status and other local needs.
In most nonprofits, board members are essential fundraisers. They typically are expected to “give or get” – to directly donate or get others to donate to the cause. Other boards may have more policy orientation, guiding the direction of an organization.
Journalism boards have traditionally included strong journalists, leaders of whatever community the publication is serving, individual philanthropists and representatives of partner organizations. News organization boards typically have conflict of interest statements that include the understanding that board members cannot have any input on editorial decisions. Some boards also have guidelines on whether board members can be politically active as individuals; they should not be active in partisan politics in any way connected to their nonprofit roles.
You’ll want to build a board that provides a balance of expertise and community representatives. Several resources are available to help you assess your organization’s needs, to map out board roles, and recruit and train board members. Some nonprofits have essentially two levels of boards – a formal board of the nonprofit, and an advisory board that offers a less-formal role for broader community diversity as well as an informal training ground for potential board members.
Early in your decision-making is the time to gauge your community’s information needs and how willing and able your community is to step up financially to support you. Your community may not have the resources to do so.
There are several first steps you can take to assess your community’s financial capacity and proclivity to support local news. Here are some ideas:
Assessing information needs of your community is just as important as assessing financial capacity. Those who’ve done it have used surveys, focus groups, and formal assessment tools (see the resources below). For most, it was the beginning of not only understanding their community more deeply, but also of helping the community understand the organization’s coming transformation and what it would mean to them.
Survey your readers – and nonreaders – and hold focus groups to discover what they want from their community-led, nonprofit news organization. Ask them how they want to be involved.
News needs change, so even if you are deeply embedded in your community and believe you understand its news needs, it’s critical to ask people frequently what information is most important to them and where there are gaps in local news.
Resources
Searchable database of foundation, charity and nonprofit tax filings from Candid: 990 Finder
Impact Architects’ new guide on assessing information needs
The Membership Guide, Conducting Audience Research and Designing a Membership Program
Democracy Fund Local News Lab resources on engaging community
Local News Lab, Focus Groups Guide to using focus groups for community engagement
Lenfest Institute, Learning to Listen: Building a culture of engagement in newsrooms
Internews, a case study of community outreach in Fresno, California, An information ecosystem assessment
A key step to raising funds and growing community support is to articulate the social benefit of your work and its mission. For a nonprofit, a mission is the public promise the organization makes to the community it serves, and the foundation of IRS approval. A case for support encapsulates the reasons the public should rally to the cause.
Many people became journalists driven by idealistic hopes about their enterprise or investigative reporting. But for generations, news has been viewed mostly as a business, and a very profitable one. Thinking of news as a charity can be a startling idea to many.
So you can’t create a nonprofit that simply replaces a for-profit newspaper with the same coverage, services and business models, and say it’s nonprofit because the ad-supported business model no longer works. That’s unlikely to justify nonprofit legal status or win you donors. Nonprofit news organizations are called on to expand their mission to include more public-interest coverage, foster media literacy, hold events to encourage civic engagement, and provide educational and training opportunities for young and diverse voices.
In developing your mission statement, you’ll want to go beyond journalism terms (credibility, fact-based, accountability, etc.) so your work can be easily and broadly understood. Here are some ideas to get you started:
Once you are clear on your scope and mission, put it on paper.
Resources
Examples
You have options in how you transition to a nonprofit. Whether to close an existing business and start a new nonprofit, or to sell or transfer an LLC or other commercial corporation to a nonprofit should be an early consideration and informed by legal advice in the state where you are incorporated.
You could choose to sell your newspaper. In some places, community groups are setting up nonprofits that then buy a for-profit paper and manage it to serve the nonprofit’s mission and community good. This process can work to compensate owners for the assets they have built up, provide an exit strategy and in some cases, relieve commercial pressure to show a profit. To avoid conflict of interest if the owners of the newspaper are also involved in the board of the new nonprofit, it may require an external valuation of the paper to make sure the purchase price is fair.
Be aware that some of your activities as a commercial enterprise, if you choose to continue them as a nonprofit, may be subject to the IRS’ Unrelated Business Income Tax, commonly referred to as UBIT. Nonprofits sometimes are skittish about UBIT, in part because what is and what isn’t subject to it in the news world isn’t yet clearly defined, but you shouldn’t be. At worst you pay tax on that part of your business just as you did as a for-profit. A qualified tax professional should advise on the specifics.
If profitable business is still a substantial part of your work, you may want to consider creating hybrid structures, such as separate for- and nonprofit businesses or becoming a Public Benefit Corporation. San Francisco’s Bay City News did just that, continuing its for-profit local wire service and creating the nonprofit BayCityNews.org to support local newsgathering, news training and other public service aspects of local journalism. Keep in mind that running two business models more or less doubles your work, so hybrids are unusual and most businesses opt for one or the other. Another option is for an existing for-profit newspaper to establish a fiscal sponsorship relationship with an established nonprofit and channel grant money for specific investigative or educational journalism projects run by the for-profit. Additional reporting and due diligence is required here, but it is beneficial for a short-term journalism project. As mentioned previously, you can also ask your local community foundation to establish a fund for local journalism for this purpose.
Whatever path you choose, you’ll need to develop a nonprofit business plan. INN recommends the lean business canvas (there are many forms available online) paired with a three-year revenue and expense projection. The canvas also can help you define target audiences and articulate your nonprofit mission.
Resources
Converting to a nonprofit is a legal change that affects how you handle assets from your for-profit and the ownership stake of owner-investors. Get legal advice early.
You’ll want to understand the issues for your particular news organization, and the requirements of your local state law on incorporation and fundraising, as well as federal laws.
INN cannot provide this legal advice, but on our INN.org legal resources page you can find referral links to some law firms we work with. You also can find nonprofit law specialists through state nonprofit associations. Find yours through the National Council of Nonprofits.
Owners who have converted have found legal help in a variety of ways, from asking contacts at existing nonprofit organizations in their community, to doing online searches for “nonprofit startups.”
The cost of setting up a new organization and managing the asset transfer depends on several variables, with the simplest asset transfer running about $5,000 to $15,000.
Here’s what an attorney is going to want from you in order to file the application for nonprofit status, called form 1023:
Resources
Becoming a nonprofit may feel like a new world in many respects, but it’s still OK – and good – to make a profit. Most news nonprofits rely on at least three revenue streams, including grants, advertising, sponsorships, events, subscriptions and donations. The 2020 INN Index found that a little less than half of funding (47%) for nonprofit news in 2019 came from foundations, more than a third (36%) from individual giving (including major donors, small-dollar donors and members combined), and close to a sixth (14%) from earned revenue (advertising, sponsorship, underwriting).
How you choose to evolve as a nonprofit will depend a lot on your audience and your distribution strategy. A local nonprofit may find success with community-oriented fundraising events, while a niche, topically oriented nonprofit may do better seeking national foundation support. You need to think about who your target audience is, what your reach is and will be and whether it is broad enough to offer your organization financial support.
Fortunately, we see more communities, concerned about the loss of coverage as commercial newsrooms shrink, eager to step up and pay to help rebuild the local journalism they need. Owners who have converted to nonprofit status report being pleasantly surprised at how enthusiastic their community was. One publisher said she came to realize that the community always had thought of the newspaper as fundamental to their sense of community.
The initial business plan you discuss with community leaders, funders, foundations, and lenders (as used in your IRS application) will evolve, but at a minimum, you’ll need the strategic and financial plans discussed in Chapter 7.
The IRS Form 1023 and your board will need a preliminary budget. Think about what is realistic in terms of staff, expenses and, most importantly revenue. What additional resources do you anticipate from philanthropy? How will becoming a nonprofit impact your paid subscriptions and advertising if they are a part of your revenue model? Will you ask advertisers to switch to a corporate sponsorship model – or do both advertising and sponsorships? Will you ask current subscribers to pay a little more and become members as well? Look at the research you did in the area of foundation and corporate giving. Keeping in mind that the grant cycle for foundations can be very long – sometimes a year – how many grants can you reasonably expect to gain in year 1, year 2?
Resources
Example: The Salt Lake Tribune’s Supporting Subscriber program
Embracing being a nonprofit or a public benefit organization means more than legal and tax changes. It can mean changes to your editorial policy and other operational policies. While most news organizations pledge to serve the public, and many journalists are passionate about public service, they will still need to change in some important ways to comply with federal tax guidelines.
IRS guidelines prohibit partisan political activity in organizations that seek exemption as a charity under section 501(c)(3). For many news organizations, that means they stop endorsing candidates for elected offices. You can still cover campaigns and elections and have a robust editorial page with opinion pieces and columns, but you’ll want to be sure you understand how to adjust what you do.
For many journalists, accustomed to a clear separation between the newsroom and the advertising department, maintaining editorial independence from donations and community involvement is a concern. You’ll set up clear policies and statements on the roles of board members and donors or other funders. Support for your nonprofit doesn’t mean any individual or sponsoring organization will make editorial decisions on coverage or story play. Having a clear and well thought out policy and process for publication of op-eds or guest commentary also is important to avoiding any implication of partisan behavior by a nonprofit news organization.
Meanwhile, some journalists may want training to embrace the community service aspect of their work. What does being responsive to the community mean for beat reporters? How does coverage planning meet the organization’s public mission? You’ll want to think these issues through and offer clear guidance and dialogue with your staff.
Resources
For many of us who have worked in the news business for some time, it has been a roller-coaster of digital innovation and evolution, new players, courageous innovation and commitment to community, shrinking legacy media, and an obsessive focus on finances. Many of us became journalists with idealistic notions of digging out the truth, telling stories, and having a thrilling front seat to world events. Some of us just loved the adventure of a profession built on the unexpected, a new story every day.
The economic decline of commercial media has been disheartening. The green shoots of the fledgling nonprofit news ecosystem have been soul-saving. INN itself began in 2009 when 27 journalists, concerned about cuts to enterprise reporting, gathered to plan the future of investigative journalism. INN is now more than 300 strong. Dedicated people from news, communities, philanthropy, and educational realms are building new ways to inform communities, hold the powerful accountable and help keep our democracy free.
Going this route is an adventure and a continual transformation. Many of us have made multiple mental shifts, from journalist to business person, from community or business leaders to journalism leaders. We know that while journalism is our mission, it is not, by itself, the product or a business model.
Success requires surfing the waves of continual change, of innovating and pivoting, of forging alliances and developing new skills in fundraising, community engagement and new products, from newsletters and video/audio to events to membership programs.
It is incredibly demanding, rewarding and meaningful work. Join us.
Resource Harvard Business Review, Should you be an entrepreneur? Take this test
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