WHEN AUDITORS TURN EDITORS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00806R000100500079-9
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 1
• Document Creation Date: December 22, 2016
• Document Release Date: August 25, 2010
• Sequence Number: 79
• Publication Date: December 1, 1981
• Content Type: OPEN SOURCE

Sanitized Copy Approved for Release 2010/08/25: CIA-RDP90-00806R000100500079-9
COLUMBIA JOURNALISM REVIEW
November/December 1981
-1walm Ell WP ". i ArMmh
len MAMN'ba"di'" I r S It, - 00 "am T J
The IRS and the nonprofit press
by ANGUS MACKENZIE
ARTICLE APPEARED
ON PAGE. Zl_
or many publications, qualifying as tax exempt under
Internal Revenue Code 501 (c) (3) is a matter of life
or death. Those that qualify are eligible to receive
contributions which donors can write off as deductions.
Another boon for those who pass the IRS test is lower post-
age rates. Mark Dowie, who served as publisher of Mother
Jones until August 198G, estimates that in recent years its
exempt status. saved the muckraking magazine roughly
S200,000 annually on postal solicitations alone.
Now Mother Jones is one of a group of nonprofit publi-
cations, of varying political persuasions, that have reason to
fear that the IRS will put them out of business, or at least
make it very hard for them to survive, by withdrawing their
tax-exempt status. Meanwhile, both the language of the tax
laws and the close scrutiny accorded some of these publica-
tions by revenue agents have, in effect, already abridged
freedom of the press in this country: there are limits to what
a nonprofit periodical can say; there are proscribed ways of
dealing with subject matter. Auditors have become editors.
Mother Jones's troubles with the IRS started last year
five years after its parent, the Foundation for National Prog-
ress, was granted tax-exempt status as a nonprofit charitable
and educational entity. On March 27, 1980, then-publisher
Down received a phone call from IRS agent Lee Junio.
Junio said she was starting a "routine" audit of the founda-
tion, including its magazine, and would like to visit its
offices on Third Street in San Francisco to take a closer look
at how it operated.
Junio turned up on April 17 and for a week settled into the
magazine's editorial conference room. Her field audit exam-
ined the year 1978. She wanted everything: editorial and
financial records; contracts between the magazine and its
writers; information about the qualifications of its writers;
and every 1978 issue of Mother Jones, as well as all the
publications put out that year by the foundation's six other
projects. (The six are: The New School for Democratic
Management, The Energy Project, The Solar Energy Proj-
ect, The Rent Control Project, The Mental Health Project,
Angus Mackenzie is a free-lance writer who lives in San Fran-
cisco. This article was financed in part by the Fund for lnvestiga-
tire Journalism
Sanitized Copy Approved for Release 2010/08/25: CIA-RDP90-00806R000100500079-9
and The TV Project.) After she had selected and photo-
copied key documents, Junto returned to her office in the
San Francisco Federal Building, where she continued her
analysis.
In the summer of 1980, Dowie stepped down as publisher
and was replaced by Jacques Marchand. Marchand asked
the foundation's tax attorney, Thomas Silk, to handle the
legal response to any questions Junio's audit might raise.
Silk, who had formerly worked with the Tax Division of the
Department of Justice, subsequently met with Junio who
did, indeed, raise several questions. The prickliest was:
How is Mother Jones distinguishable from a commercial
publication? Since, according to IRS Revenue Ruling 67-4,
a nonprofit publishing venture must be distinguishable in a
variety of ways from a commercial one, the question posed
the threat that Mother Jones would be taxable. "It was the
first indication," Silk recalls, "that there might be some
doubt as to the favorable resolution of the audit."
n a detailed memorandum - Junio had asked for a reply
in writing - Silk spelled out the differences between
Mother Jones and commercial publications: the maga-
zine did not want to make a profit, and it had never made a
profit; its economic survival, he wrote, "is possible only
because of charitable contributions and low-interest loans
made by its supporters." Moreover, the foundation's
.charitable and educational principles brought Mother Jones
into "frequent conflict with big business," thus drying up_a
potential source of ad revenue: corporate advertising. Au-
tomobile manufacturers also shunned the magazine, Silk
pointed out, as a result of its articles on the Ford Pinto.
During the audit, Mother Jones happened to be preparing
for publication - in its February/March issue - just the
sort of piece that revenue agents might be expected to study
with special care. Publishing articles that attempt to
influence legislation may be grounds for challenging an or-
ganization's tax-exempt status. "The Trenchcoats Re-
trench," by Jeff Stein, dealt with the Intelligence Identities
Protection Act, which would jail reporters and publishers
for exposing the identities of intelligence agents. "If Stein
had submitted a piece opposing that legislation," comments
Marchand, "we couldn't have run it. We cannot say it ought
to be opposed. We've got to be very cautious."