• Tax status of a nonprofit
    December 14,2012
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    Tax status of a nonprofit

    Much has been made of the death of local news media, and I for one would have to agree with those who lament the passing of many treasured outlets.

    In a national environment defined by its most strident extremes, it’s a welcome influence to have outlets that shoot for moderation without allowing their agendas to be tainted by national movements of one extremist stench or another. Local newspapers uniquely satisfy our need for items of specific interest while contributing to our sense of what we locally share, and they do it all while competing in a marketplace that grows increasingly difficult for traditional outlets.

    While I wouldn’t advocate manipulating that market solely to ensure the survival of a particular vendor, I would advocate that we must provide a market that is fair, level, and in which all competitors abide by the same rules.

    In Vermont, with its limited number of local dailies, any change has a significant effect, and I would offer that the online commercial venture Vermont Digger has had an effect, for good or ill, that cannot be denied. In Vermont Digger we have what some might describe as a “new wave” of journalism; however, I would describe as commercial journalism that exploits the existing tax code in new and questionable ways.

    While most community newspapers operate as commercial entities, Vermont Digger, uses its 501(c)3 tax designation as a “nonprofit” in order to not only minimize its tax burden, but also to allow the venture to accept secret tax-free donations from individuals and organizations to augment the revenue it receives from advertising and subscriptions.

    Please don’t misinterpret my use of the term “nonprofit”; “nonprofit” does not mean not-profitable. The directors and employees of Vermont Digger are compensated at a competitive scale, and this is not your local soup kitchen. These are paid employees working in the field of their choice.

    In this situation “nonprofit” means Vermont Digger portrayed itself in such a manner to the IRS as to give the impression the venture was offering nontraditional journalistic benefit to the community. This representation is important, as journalism itself is not one of the eight reasons for which a benefits organization can gain nonprofit status.

    To do so, the organization must offer in its mission statement and application to the IRS for this exclusive tax status some benefit it will provide in the approved categories, including education or literary benefit. The organization cannot merely repeat the services offered by commercial ventures that are taxed as commercial ventures, which is unfortunately what Vermont Digger appears to do.

    In order to gain this particular tax-Nirvana really the only constraint the organization must deal with is it must give up any blatant partisan advocacy. Unfortunately, such advocacy, or freedom from, is very much in the eye of the beholder and difficult to conclusively measure.

    Once the exclusive 501(c)3 status has been established, the organization is free to accept tax-free donations from all and sundry — comfortably avoiding not only revealing the donors but also without revealing what expectation of benefits such donors might have for their gifts. In fact, if one merely reviews the abbreviated list of major donors to Vermont Digger available on their front page, one has to wonder what benefit the marquee organizations receive for their investment when compared to their mission statements. There must be some benefit or their directors would be pounding boardroom tables across Vermont demanding justifications for what would appear to be a misuse of monies.

    A case in point might be the High Meadows Fund. This particular organization, outside of being a sub-program of the Vermont Community Fund (another Vermont Digger donor), would appear to function as nothing more than a $100,000-a-year sinecure for Gaye Symington, and it is unclear how subsidizing a local media outfit fits in with the organization’s mission statement to “promote vibrant communities and a healthy natural environment.”

    Unfortunately, Vermont Digger is not required to say and has yet to investigate. Perhaps these two facts are related. I have to believe that if a traditional local paper was discovered to be soliciting and accepting undisclosed gifts from advocacy organizations with no clearly defined quid pro quo, someone would hopefully raise a red flag. Yet somehow the “nonprofit” label appears to insulate Vermont Digger from those same reasonable questions.

    Regardless of your political persuasion, I would ask you to join me in using our power as citizens to ensure that all commercial ventures operate on a level playing field. The IRS offers a quick and easy to use application to file a complaint requesting investigation of ventures exploiting section 501(c)3 for unapproved or inappropriate purposes. It takes five minutes of your time and may contribute to the survival of your local paper.

    The form is available at http://www.irs.gov/, search for Form 13909, and can be submitted online and anonymously. It’s really not too much to ask that Vermont Digger play by the rules everyone else plays by.


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