The New York Times announced Monday that it plans to cut 100 newsroom jobs—about 8 percent of the total—by year's end. Distressed commenters on the Times Web site have expressed their willingness to pay more for online content or even donate. Can the Times, a publicly traded company,accept donations?
Yes. Any company can accept money from eager customers. But whereas benefactors of nonprofits can claim charitable deductions on their taxes, supporters of for-profit ventures like the Times cannot. Indeed, the IRS would qualify such contributions as gifts rather than donations. It follows that there's a financial incentive to donate cash to even prosperous charities, but not to the ailing paper.
Of course, the Times could accept deductible donations if it were a nonprofit company. In March, Sen. Benjamin Cardin of Maryland introduced the Newspaper Revitalization Act, a bill that would allow for-profit newspapers to redesignate themselves as nonprofits. Advertising and subscription revenue would then be tax-exempt, and all contributions would be deductible. The bill hasn't yet moved forward in Congress, nor is it clear how a debt-saddled, money-losing newspaper could reorganize itself as a viable nonprofit. Also, nonprofit status would engender considerable changes at the Times: Any tax-exempt organization is prohibited from making political endorsements (though political reporting is fine). A nonprofit can take positions on public policy issues but must avoid advocating a candidate, even implicitly.
Newspaper Revitalization Act aside, becoming a nonprofit can be prohibitively expensive. In order to reorganize, a corporation must first liquidate its assets—the proceeds of which are taxable. Alternatively, the major shareholders could donate their stock to a newly formed or existing foundation. (Those unwilling to donate their shares could be bought out.) This nonprofit foundation would control the Times as a taxable, for-profit corporation (which can make political endorsements) and could accept deductible donations. This setup already exists: The Poynter Institute, a nonprofit educational institution, owns the St. Petersburg Times.
To entice donors, the newspaper could also conceivably reorganize itself as a low-profit limited-liability company (L3C), a sort of happy medium between for-profit and nonprofit status. An L3C is run like a regular business, but its stated objective is something socially beneficial, with profitability as a secondary goal. Americans for Community Development, a coalition of organizations promoting L3C, have singled out newspapers as possible beneficiaries of this status. The catch here is that, as of yet, only a handful of states recognize L3C status. New York, where the Times is based, does not, and neither does the federal government.
Got a question about today's news? Ask the Explainer.
Explainer thanks Brian Price of Harvard Law School and A.L. Spitzer of Ropes & Gray LLP.
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