INN believes nonprofit news organizations have an enormous, largely untapped opportunity to dramatically grow their earned revenue. We provide resources on how to grow revenue from sources such as display advertising, event sponsorships, and sponsored content, and how to recognize the tax implications.
A nonprofit is organized for a particular mission, and the revenue related to that mission is nontaxable. But there are instances when a nonprofit does something the IRS deems to be not part of its mission. That revenue is classified as unrelated business income and subject to tax.
For example, if your nonprofit news site sells advertising, you may see that as supporting the mission, but the IRS can rule it as unrelated income. The distinction could be based on the ad’s content. If it is about the goods and services of the advertiser, or a company’s current special offers, it is not supporting the nonprofit mission. But if the ad space showcases a company as a proud sponsor of the nonprofit, then that revenue would more likely be recognized by the IRS as supporting the mission and therefore not subject to the unrelated business income tax (or UBIT). It is best to check with your accountant or tax adviser as you pursue an earned income strategy.
Other examples of unrelated income:
- A nonprofit regularly uses its staff talent to perform services for pay. A health news website makes videos for its sponsors, such as a local gym, to use on their websites to attract customers. That work may seem aligned with the health site’s mission, but the IRS could call it unrelated income.
- A nonprofit sublets a portion of its office and the rent passes through the nonprofit rather than being paid directly by the subtenant to the landlord.
Some nonprofits may also owe state or local income tax on unrelated income. These jurisdictions generally follows the same IRS guidelines, but nonprofits should check with a tax preparer familiar with both their local laws and Form 990, which tax-exempt organizations must file each year with the IRS.
In late 2020, Google News Initiative and INN released the Nonprofit News Guide to Earned Revenue — a comprehensive “playbook” showing nonprofit newsrooms how to grow revenue from display advertising, event sponsorships, sponsored content, and other earned revenue sources.
The impetus for the guide came out of data from INN’s 2020 Index indicating that earned revenue made up, on average, just 11% of reporting members’ total revenue. But some statewide outlets (such as Texas Tribune and NJ Spotlight) had grown earned revenue to about one-third of their overall revenue.
IRS Publication on Unrelated Business Income Tax, What Nonprofits Need to Know about Form 990
INN Case Study: How Madison365 Stays True to Its Mission While Earning More than Half Its Revenue from Businesses
INN Case Study: Rivard Report; How a Local News Organization Managed to Generate 3X More Earned Revenue than the Average Nonprofit Newsroom