In the evolving landscape of digital media, news outlets face significant challenges in maintaining traditional revenue streams. With the rise of digital platforms, the reliance on advertising revenue that once sustained them in the 20th century has diminished, as advertisers find alternative avenues such as social media to connect with potential customers.
As a result, many news organizations are shifting focus towards subscription models to stay afloat. However, convincing readers to pay for news remains an uphill battle, given the plethora of often free alternatives available to access information, if they choose to seek it at all.
Amidst these challenges, local news outlets are increasingly adopting nonprofit models, enabling them to secure grants and donations, thus diversifying their revenue streams. However, some nonprofit leaders are cautious about selling ads due to potential tax implications and the risk of jeopardizing their tax-exempt status, though some experts argue this concern might be overstated.
Exploring Earned Revenue
Drawing from my experience as a public radio journalist and current research in the nonprofit news sector, I conducted interviews with 23 nonprofit news leaders in 2023 to explore their fundraising strategies. Additionally, I analyzed numerous 990 forms filed with the IRS, which offer insights into their financial practices.
Findings published in early 2025 reveal that nonprofit news leaders remain heavily reliant on foundational and individual donor support, despite calls from organizations like the Institute for Nonprofit News to diversify revenue streams, including earned revenue through advertising.
Understanding Unrelated Business Income
While donations to charitable nonprofits are tax-exempt, revenue from advertisements and sponsorships is often taxable as unrelated business income. This distinction aims to prevent nonprofits from gaining an unfair advantage over for-profit competitors.
Some news nonprofits are challenging this classification, arguing that advertising should be considered part of their mission. For instance, the San Antonio Report classified its $361,649 in ad revenue as mission-related and tax-exempt, according to their tax filings. This approach finds precedent in a 1986 Supreme Court ruling allowing for tax-exempt advertising revenue if it serves an educational function aligned with the nonprofit’s purpose.
Maria Korneeva/Moment via Getty Images
Advertising and Tax Risks
Despite potential benefits, some nonprofit leaders remain wary of advertising due to IRS warnings that excessive unrelated business income could lead to loss of tax-exempt status. This risk, along with other factors like mission drift and failure to file annual forms, ranks among the top reasons for losing nonprofit status.
Without clear IRS guidelines on what constitutes “too much” unrelated business income, nonprofits tread carefully. Some experts suggest keeping such income under 25% of total revenue, though the ambiguity leads many to avoid it altogether.
Nonetheless, some local news nonprofits continue to sell ads despite the tax implications, with 21 out of approximately 201 members of the Institute for Nonprofit News reporting at least $1,000 in unrelated business income in recent years.
Few Tax Exemptions Revoked
In reality, the IRS seldom revokes tax-exempt status due to unrelated business income. The most frequent cause of revocation is the failure to file 990 forms for three consecutive years, which triggers an automatic revocation but is reversible upon compliance.
While concerns about advertising’s tax burden and regulatory risks remain, the actual impact appears limited, with less than 0.1% of nonprofits affected by revocation for these reasons.
Nevertheless, the regulatory landscape remains unpredictable. In 2025, the Trump administration threatened to revoke the nonprofit status of Harvard University, indicating potential scrutiny on nonprofits that resist governmental pressures. Despite this, legal experts believe Harvard’s status is secure.
Such uncertainty can make nonprofit news organizations cautious, especially as they navigate financial challenges and regulatory ambiguities in maintaining their operations.
The Conversation U.S. is a member of the Institute for Nonprofit News and does not get any revenue from advertising.
