04/10/2013 05:32 pm ET Updated Jun 10, 2013

The IRS and Nonprofit Media

Thomas Jefferson is often quoted as having said: "Were it left to me to decide whether we should have a government without newspapers, or newspapers without a government, I should not hesitate a moment to prefer the latter." Even a man of Jefferson's brilliance could scarcely imagine the collapse of the newspaper industry, which was the only way that journalism was distributed in his time.

As an inventor and visionary, Jefferson surely would have reveled in the explosion of new forms of distributing journalism that have overtaken the old "dead tree" model of distribution. I imagine that Jefferson himself would have been a Huffington Post contributor!

So I know that a recently released report by the Nonprofit Media Working Group, created by the Council on Foundations with a grant from the John S. and James L. Knight Foundation, would have worried Jefferson greatly.

The study found that, to put it simply, the way that the IRS considers applications from emerging nonprofit news organizations simply hasn't kept pace with the changes that have occurred in how news is gathered and delivered. And that's turning out to be a really important issue.

As the Columbia University notes in its report Post Industrial Journalism: Adapting to the Present "Good journalism has always been subsidized; markets have never supplied as much news as democracy demands." For newspapers, that subsidy came in the form of advertising. Radio and TV stations used not only advertising but free access to the airwaves to subsidize their journalism. With some notable exceptions like NPR and the Christian Science Monitor, philanthropy didn't play a big role in supporting journalism.

But it does now. America's foundations are rushing to support innovative ways of delivering journalism. Through foundation support, organizations like the Grand Rapids Rapidian, Minnpost and (which was funded by the foundation I work for) are seeking to provide citizens with independently developed news about their communities.

But as the Nonprofit Media Working Group found, IRS treatment of these initiatives is uneven. When they apply for nonprofit status some get approved, some don't and the process often takes way too long. The IRS has taken the position on several occasions (one which Thomas Jefferson surely would not share) that civic journalism is not "educational" (often a key criteria for determining tax exemption).

The report goes deep in detailing how IRS policies are inhibiting the growth of new media and holding these new experiments to antiquated or restrictive standards. For example, some nonprofit media organizations has challenged new organizations for including advertising or subscription income in their business plans. That's an outdated policy and one certain to undermine the ability of new media organizations to survive.

There's a great urgency to this issue. While it's true that at a global level, consumers are confronted with a wider variety of news choices than ever, it's also true that the business models that will sustain many of these options are shaky at best. Moreover, access to news hasn't expanded evenly. Many communities that have lost (or are slowly losing) their daily newspaper or television news are desperately in need of independently generated local news.

The Nonprofit Media Working Group report lays out a variety of recommendations that the IRS can adopt to modernize its approach to the media. Let's hope that the IRS takes this issue seriously.

I'm sure Mr. Jefferson would want them to.