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Not-For-Profit Journalism Makes Sense

There has seldom been very much money to be made in journalism, so it makes a certain amount of sense that some of the more noteworthy enterprises in the field today are being structured as not-for-profit entities.

No, I don’t mean Jeff Bezos’ purchase of The Washington Post, which will probably never be especially profitable. I mean organizations like The Texas Tribune, which not only covers the events and policy in the state for its residents’ benefit, but also makes some of its material available for publication in other outlets, including The New York Times. Another example is ProPublica, which purports to produce “investigative journalism in the public interest.”

Both The Texas Tribune and ProPublica are organized as nonprofit entities under section 501(c)(3) of the Internal Revenue Code. This means they are not subject to corporate income taxes. It also means that, as a condition of their tax exempt status, they can have no shareholders and any money that is left over after paying expenses must be reinvested in the enterprise, not distributed to the owners. (Both organizations provide copies of their recent IRS Form 990s and other financial information on their respective websites.) This rule against what the IRS calls inurement is a critical component of the rules governing nonprofit status, and is arguably the most logical.

Less logical and somewhat disturbing is the law’s demand that not-for-profit organizations refrain from too much political activity including, in some cases at least, too much political speech. This is at the heart of the IRS’ Tea Party scandal, about which I have written before.

It is important to take a moment to distinguish between 501(c)(3)s and other sorts of nonprofit groups, such as 501(c)(4)s. Donors to 501(c)(3) organizations can take tax deductions for their gifts, while donors to others sorts of nonprofits cannot. It is fair and, I believe, constitutionally appropriate for Congress to prohibit tax deductions for contributions to groups conducting overt political activity. The complications arise when one tries to draw the line between political activity and political speech. Under the current administration, the IRS has been far too quick to try to regulate speech, especially that in which politically right-wing, noncharitable yet not-for-profit 501(c)(4) entities wished to engage.

Very simply, the government has no business trying to restrict political speech, which is nearly impossible to define and is fully shielded by the First Amendment in any event.

I happen to think that The Texas Tribune’s reporting seems fair and well-balanced. This isn’t terribly surprising, as the organization is based in Austin, a liberal city situated in the midst of a very conservative state. If it wants to attract a statewide audience, it behooves the Tribune not to fall too far on either side of a partisan line. Other local nonprofit news organizations, such as the Voice of San Diego or MinnPost, may or may not need to keep similar regional dynamics in mind.

On the other hand, I think ProPublica’s journalism has a large dose of activism and advocacy that does not fit my definitions of nonpartisan and nonpolitical, even though it does not specifically address party politics. National Public Radio, arguably the most visible nonprofit news source in the United States, may vary in tone and content along with its local affiliates in different parts of the country, but is certainly not without a point of view anywhere.

Neither I nor the government should judge the content of the organizations’ reporting in order to figure out how to tax them. The First Amendment protects the press, including editorial choices regarding political content. Nonprofits organized under section 501(c)(3) are prohibited from supporting or opposing any specific candidate for public office; this is however, not the same as demanding an organization be truly nonpartisan. The IRS has specifically clarified that 501(c)(3) groups “may take positions on public policy issues, including issues that divide candidates in an election for public office,” so long as they avoid explicitly or tacitly supporting a given candidate.

So it is sufficient that these organizations have no shareholders and are governed by self-perpetuating boards that operate in the interest of their constituents, however they define them. While it might be reasonable to argue that it is unfair to tax Jeff Bezos’ Washington Post on its profits while The Texas Tribune or ProPublica is exempt, since The Washington Post also believes its journalism is in the public interest, the fact remains that if the Post someday proves to be worth more than Bezos paid, those gains belong to him. By organizing their newsrooms as nonprofits, the founders of The Texas Tribune, ProPublica and other similar entities chose to forego such capital appreciation, theoretical or otherwise, in favor of reinvesting in more of the type of news their supporters wish to see.

The not-for-profit model allows those who are really interested in journalism, of whatever flavor, to support it via contributions, underwriting and sponsorship. In an era when it is very hard to sell subscriptions, this model may be the best hope for making broad-based and closely reported and edited news widely available to the public. And that, more than any one website’s content, is what I call news in the public interest.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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