Opinions

IRS foot-dragging on tax-exempt status is stifling nonprofit investigative journalism

Kathy Kiely is managing editor at the Sunlight Foundation. Diana Jean Schemo is executive editor of 100Reporters, a nonprofit investigative journalism center. 100Reporters has received grants from the Investigative News Network.

In discussions of IRS-gate, comparisons abound to an earlier scandal that brought down a president and made many political and journalistic reputations. But the focus on who knew what and when in the tea party debacle misses the point.

The real scandal at the Internal Revenue Service isn’t about political retribution; it’s about stifling the First Amendment.

Conservative activists aren’t the only ones who have been hampered by the IRS’s selective scrutiny of applicants for tax-exempt status. This spring, a consortium of respected philanthropic groups, headed by the Council on Foundations and the Knight Foundation, found that the IRS appears to be slow-walking the applications for tax-exempt status by journalism groups emerging to fill the void left by the dramatic contraction of the news media.

Until 2007, approval of applications for nonprofit investigative news centers took an average of three months, the typical wait for any application for tax-exempt status. But since 2008, the report found, the process has slowed, “in some cases taking as long as three years” for news organizations. Among examples the report cited, the Lens, an investigative online publication started in New Orleans, waited more than two years for approval of its tax-exempt status, the report noted. The San Francisco Public Press, which provides news for low-income communities, waited 32 months.

IRS inaction is far more crippling for nonprofit news organizations than for the political groups at the heart of the tea party controversy. Donors to political groups organized under section 501(c)(4) of the tax law cannot deduct contributions from their taxes.

The bar is higher for start-up news organizations seeking tax-deductible 501(c)(3) status, which is essential for soliciting the kinds of major gifts that sustain organizations. During the long delay between formation and tax-status designation, potential donors tend to limit out-of-pocket support, our colleagues building news operations have told us.

Investigative reporting is expensive. Without IRS approval, many journalism start-ups are forced to divert as much as 15 percent of reporting grants to outside fiscal sponsors, adding layers of paperwork and bureaucracy to their operations.

No one knows how many nonprofit news organizations are being held in tax limbo, because the IRS refuses to make the information public. Worse, the agency appears to be urging reporters not to speak about it. Kevin Davis of the Investigative News Network, an umbrella group for 82 news nonprofits (including the ones for which we work) said at a Washington conference in March that IRS employees have told news organizations with pending 501(c)(3) applications not to discuss their cases.

At 100Reporters, we have been waiting nearly a year for IRS review. Our organization brings together accomplished investigative journalists to cover corruption and issues of government accountability. The delay has meant fewer dollars for stories. At a recent meeting, one wealthy philanthropist who has closely followed our progress since our launch in 2011 appeared ready to write a check. But first came the question: Have you heard anything from the IRS?

Exit checkbook.

Because the IRS has been anything but transparent on the issue of nonprofit media, it’s impossible to explain the sudden slowdown in approval of applications after 2008. Steven Waldman, who authored the Nonprofit Media Working Group report, theorizes that one factor may be a surge in applications by groups that cite “journalism” as part of their mission or activities.

Sound familiar? In recent days, IRS officials explained that their targeting of groups using the names “patriot” and “tea party” was a hamhanded effort at triage after applications for nonprofit status more than doubled following the Supreme Court’s 2010 Citizens United decision, which opened the way for unlimited corporate giving in political campaigns. A similar method may be at work in handling applications from start-up news organizations.

Whatever the reason for IRS foot-dragging, it could not come at a worse time. Traditional newsrooms shed more than a quarter of their employees over the past decade, and staffing is at pre-Watergate levels, the report found. Meanwhile, the Obama administration, which brags of being history’s most transparent, appears to be taking aim at transparency’s agents, jailing whistleblowers and secretly seizing the phone records of Associated Press reporters and editors.

The victims here are not the journalists whose efforts are being stifled but members of the public who are being deprived of a viable and vibrant Fourth Estate. With money in politics and business eluding traditional regulatory agencies and even transcending borders, investigative journalism is more essential than ever — and harder than ever to sustain.

History has shown that the transparency provided by watchdogs and their sources is the best prevention for abuse of power. If it’s important to protect the political opposition, it’s also important to protect the journalists who have traditionally given dissenters access to a wider public.

IRS rules for granting tax-exempt status are shrouded in secrecy, opening the way for abuses and accusations of discrimination. Sunlight is the best disinfectant, Justice Louis Brandeis famously observed. The IRS — and all of us — could use a little now.

 
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