HuffPost's new business model: interesting hybrid

The Investigative Fund will benefit the HuffPost, which has received criticism for maintaining such a small staff, only seven reporters, and for lacking in original content. However, Poynter writer Bill Mitchell examines whether these benefits to the for-profit publication will count as "private benefits" to the IRS and, therefore, jeopardize the Fund's nonprofit status. To qualify for tax exemption under the 501(c)(3) provision of the Internal Revenue Code, the fund must serve a public interest rather than a private interest, and "prohibited, private benefit may involve non-economic benefits as well as economic benefits and...private benefit may arise regardless of whether payments made to private interests are reasonable or excessive."

According to Penniman, four teams of lawyers have scrutinized the HuffPost arrangement. "All agree that it's kosher," he says, "given a few restrictions, the most important of which being that the content the Fund produces is made available for anyone to publish at the same time it's available for Huff."

Still, attorney Marcus Owens, who specializes in nonprofits, points out that the HuffPost Fund will not only have to offer its content to other publications, but it will have to ensure that its actually published somewhere else. "The IRS might take the position that, if 75 percent of the stories run only on the Huffington Post and not anywhere else," says Owens, "substantial benefit may be resulting to a single contributor."

Lately the nonprofit business model has been considered as a potential saving grace for the newspaper industry as Bill Cardin recently introduced a bill to give newspapers tax-exempt status. Mitchell cites the benefits and disadvantages of the nonprofit model, maintaining that while it includes many funding possibilities, alleviates pressure to generate revenue, and allows more focus on journalism, it also makes a publication's business and content more subject to IRS scrutiny. Publications with nonprofit status are barred from making any kind of political endorsements, and so the Fund's stories for the HuffPost must remain strictly non-partisan despite HuffPost's liberal tendancies.

The HuffPost initiative is an interesting hybrid of the nonprofit model with its existing business model, and Penniman claims the Fund will profit its benefactors repeatedly. Other publications seeking to change their current business model and improve their investigative journalism should pay attention to the HuffPost's venture project and take note of whether it proves profitable and improves the quality of the publication or whether it incurs too many difficulties with the IRS.

Source: Poynter Online