Considerations for community newspaper conversion to nonprofit

Introduction

The purpose of this tipsheet is to provide newspaper owners with some basic information about converting to a nonprofit model. It is not meant to be a fully-featured guide or playbook, but to simply serve as a thought starter with some resources to explore. It is a product of the Rural Journalism Pipeline Project from the University of Texas at Austin.

The Salt Lake Tribune, which converted to a nonprofit model in 2019, wrote an extensive playbook about its experience that includes descriptions of different kinds of models, the decisions its executives made, and what they learned from them. That playbook offers a deeper dive into the process than this short outline.

This document is based on the experiences of two Texas print publications that recently made the switch to nonprofit status.

While there are different models entities can follow, there are two distinct parts of becoming a nonprofit newsroom:

• Filing for nonprofit status in the state you operate. This classifies your business as community-owned and allows you to accept donations and grants as a portion of your revenue. Mission-related income and revenue is tax-exempt.
• Filing for federal tax-exempt status as a 501(c)(3) with the IRS, which allows those that donate to you to also take deductions on their federal income tax based on those donations.

One big difference is the newly formed entity is not owned by a company or individual, but is instead owned by the community and run by a board of directors recruited from the community. They set the mission of the corporation and hire staff to carry that out.

Pros and cons of nonprofit status

Being a nonprofit newsroom opens up opportunities for new revenue sources, but it also comes with obligations and responsibilities.

• The current owners of the business need to understand they are giving up control of the business, but that doesn’t mean they have to walk away. Many “previous owners” have stayed on to steer the new nonprofit business, drawing a salary in the process.
• Being nonprofit does not necessarily preclude you from maintaining most current revenue sources.
  • One exception is political advertising as federal rules bar political campaign intervention.
  • You can still accept advertising and have paying subscribers, but that revenue would be handled differently for tax purposes. You have to file separate tax returns for parts of the business that are exempt versus those that are not.
  • You can continue to print legal notices as long as you continue to meet state content and subscription requirements.
• A key benefit to being nonprofit is easier access to charitable donations through membership or grants from organizations like the Knight Foundation and MacArthur Foundation.
  • There is an expectation that within five years, the business will get 33% percent of revenue from individuals who give less than 2% of the nonprofit’s overall revenue. Attracting this kind of revenue takes specific skills and mindsets that benefit from experienced leadership in those fields –  i.e., you might need to hire staff to concentrate on those efforts.
• Nonprofit status can positively affect your standing in the community. Your publication can be considered more of a community partner than a for-profit business, opening up sponsorship and advertising opportunities from businesses that may have been reluctant to participate in the past. An organization that didn’t really need or want to advertise in a for-profit newspaper might take a different view when presented with an opportunity to support a nonprofit entity devoted to covering the community.
• Your editorial mission does not necessarily change, but it likely will with greater involvement from the community through the board of directors' mission and other community input.
  • The publication can still publish editorials and opinion pieces, but the restriction of political campaign intervention means you can’t endorse candidates or issues on ballots.

General decisions and steps to going nonprofit

This is not intended to be an inclusive guide, merely a general outline of the process.

While it is possible to create a successor organization where the existing company becomes nonprofit, most organizations choose to create a new nonprofit entity and then donate assets from the old entity. This allows the previous owner a tax write-off on the contributions over the next five years.

Incorporate the new nonprofit

• Choose a Board of Directors. Three people minimum. Can include people who have been part of the previous business, but must also include independent directors.
• File the certificate of incorporation, including a definition of the corporate purpose, which must have a charitable purpose
• Create bylaws and conflict of interest policies
• Transfer of assets to the nonprofit organization
• Trademarking of any new names
• Arrange for interim fiscal sponsorship to accept charitable revenue right away

File for 501(c)(3) exemption

A process that takes a couple of months to work through. Once filed, it takes from one to six months for the IRS to approve. Nonprofits can operate during the meantime through fiscal sponsorship. Some tasks include:

• Writing a narrative description of operation
• Projected financial statements three years ahead

About fiscal sponsorship

Fiscal sponsorship allows a nonprofit organization to operate through another 501(c)(3) organization to receive grants and tax-exempt donations, etc. The fiscal sponsor takes a fee and then makes the rest of the funds available.

Resources

There are a number of organizations that offer services to help local, rural or nonprofit newsrooms. These are just some that we’ve come across:

• Lawyers for Reporters: Provides a wide range of pro bono legal advice and services to local and mission-driven reporting entities in the U.S.
• News Revenue Hub: Helps news organizations build membership and crowdfunding programs.
• Tiny News Collective: Has acted as a fiscal sponsor for new nonprofits. Also provides technology platforms for independent, local news organizations.
• Lion Publishers: Helps support the business side of news entrepreneurship.
• Institute for Nonprofit News: INN programs help nonprofit, nonpartisan, public service news organizations develop revenue and business models to support strong reporting, collaborate on editorial and business innovation, share services and advance the diverse leaders who are forging a new future for news.
• American Press Institute: Helps publishers understand and engage audiences, grow revenue, improve public-service journalism, and succeed at organizational change
• Rural News Network: Helps rural news organizations collaborate and amplify coverage of their communities.

About this project

The Rural Journalism Pipeline Project is a research project exploring the landscape of Texas community journalism succession, communicating the challenge based on case studies and research. It is funded through a grant by the IC2 Institute. Special thanks to Rick Wamre and John Starkey for sharing their experiences with us.

Authors

Kathleen McElroy, Professor

Iris Chyi, Professor

Christian McDonald, Assistant Professor of Practice

Christopher T. Assaf, Doctoral Student