The Federal Communications Commission issued a report in 2011 concluding that accountability reporting, especially at the local level, has contracted dramatically, with potentially grave consequences for communities, government responsiveness, and democracy.
Moreover, it determined that nonprofit media needs to play an increasingly significant role to help meet the educational needs of citizens. Finally, it found that there was confusion about the IRS approach to nonprofit media. This approach, which has not been updated for the digital age, risks discouraging nonprofit media innovation and undermining the odds of its success.
The report recommended that a group of tax and journalism experts gather to study these issues more carefully and make recommendations for further action. Supported by a generous grant from the John S. and James L. Knight Foundation, the Council on Foundations convened such a group from leaders of the foundation and tax-exempt media world. It has been meeting for the past year. The group confirmed that there have indeed been lengthy delays and even rejections of tax-exempt status for organizations seeking to produce local news and disseminate information in the public interest, as the IRS applies an antiquated and counterproductive standard to a dynamic sector. The group has concluded that the IRS approach needs to be modernized. Specifically, in deciding whether to grant an organization tax exempt status, we recommend that the IRS shift its focus from operational distinctions between nonprofits and for profits that have been made irrelevant by developments in communications technology. Instead, the IRS should evaluate whether the media organization is engaged primarily in educational activities that provide a community benefit, as opposed to advancing private interests, and whether it is organized and managed as a nonprofit tax-exempt organization. In this report, the group makes a series of specific recommendations that maintains essential distinctions between for-profit and nonprofit media yet also removes obstacles from the types of innovation that are desperately needed to fill the gaps in nonprofit news, especially accountability journalism.