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Crack the IRS code on nonprofit status using this Q&A guide designed with publishers in mind. The Berkman Center’s Digital Media Law Project breaks down complex information into bite-sized bits.

Guide to the IRS Decision-Making Process for Journalism and Publishing Non-profits

In order to avoid the difficulty that for-profit news organizations can face with capitalization and profitability, many startup news outlets have elected to form as non-profit corporations. The business plan for such organizations normally depends on obtaining tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, so that they can avoid payment of corporate tax and receive tax-deductible donations from foundations and individuals (among other significant benefits).

The IRS is the United States government agency charged with determining whether applicants qualify for an exemption from taxation at the federal level. The IRS applies the Internal Revenue Code as it is written by the U.S. Congress; although the IRS is granted substantial discretion to interpret the law, it is not empowered to deviate from the language of the law. In that regard, it is important to understand that Section 501(c)(3) contains no tax exemptions that are specifically intended to benefit journalism organizations. Put another way, the fact that an organization is intended to benefit the public by sharing newsworthy information is not by itself sufficient to obtain Section 501(c)(3) status. Rather, the IRS applies a complex set of federal laws, agency regulations and internal guidelines to determine whether an applicant meets the statutory definition of a tax-exempt organization.

While there have been controversial decisions by the IRS in particular cases, it is critical to understand that the IRS’s primary duty with respect to these applications is to protect the public fisc by ensuring that only organizations that meet criteria enacted by the United States Congress are granted a 501(c)(3) exemption. Although the IRS has some discretion in applying these criteria, it does not have the authority to recognize broad new categories of tax-exempt organizations, such as news outlets.

Until and unless there is action in Congress to facilitate tax exemptions for journalism non-profits, news organizations seeking 501(c)(3) status must learn how to structure their operations to meet the existing standards applied by the IRS. To that end, this guide is intended to provide practical information regarding the standards that the IRS applies in determining whether to grant federal tax-exempt status to a non-profit organization under Section 501(c)(3).” Source: Citizen Media Law Project

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