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Can Nonprofits Sell Ads Without Losing Their Tax-Exempt Status? A New Report Says: Usually, Yes.
Many nonprofit news outlets have long operated under the fear that selling advertising space could endanger their federal tax-exempt status. The concern: ad sales might be classified as “unrelated business income,” triggering extra tax or even revocation of nonprofit status. But a recent analysis suggests those fears are often overblown: losing exempt status for ad revenue is rare — if the organization understands the rules.
What Does the Law Say About Advertising & Nonprofits?
Under U.S. tax law, nonprofits are generally exempt from income tax — but only as long as they adhere to certain restrictions. One of those concerns: the treatment of revenue from business-like activities.
If a nonprofit earns income from activities that are not “substantially related” to its tax-exempt mission, that income may be subject to the so-called Unrelated Business Income Tax (UBIT), under Internal Revenue Code Section 512.
Income from ad sales — e.g. selling advertising space on a website or in a periodic publication — is commonly treated as unrelated business income under IRS guidance.
However — and this is critical — there is nuance. If an organization’s work, including its publishing or news reporting, is central to its exempt mission, or if advertising is integral and not purely commercial, the IRS may treat the operation differently. Some legal precedents suggest advertising by a nonprofit press can be considered related activity rather than a separate commercial enterprise.
That complexity means a nonprofit’s risk depends heavily on how it defines its purpose, how central publishing is to that purpose, and how it conducts ad sales and accounting.
What the New Report Found: Tax-Exempt Status Often Remains Intact — Even With Ads
The recent article by The Conversation, based on interviews with dozens of nonprofit news organizations and a review of public IRS data, dispels some common myths.
Many nonprofit news outlets have continued to sell ads, even while they acknowledged concerns about UBIT or tax-exempt jeopardy.
Of the roughly two hundred local-news nonprofits surveyed, a number reported at least minimal advertising revenue — but only a handful paid any UBIT on that revenue.
Even among those with ad-derived income, very few have seen their tax-exempt status challenged or revoked for that reason. According to IRS revocation data, revocations due to "too much unrelated business income" are extremely rare compared to other causes such as failure to file required annual reports.
In short, ad sales alone have seldom triggered IRS enforcement or revocation, provided the nonprofit handles them properly.
Key Considerations & Best Practices for Nonprofits and Their Advisors
For nonprofits, the takeaway isn’t “sell all the ads you want.” Instead, it’s “if you’re going to sell ads, do it with care.” Here’s what matters:
Be Intentional with Mission and Messaging
If your nonprofit was formed with journalism, publishing, or education at its core, and selling ads supports that mission — rather than replacing it — you’re on firmer footing. Context matters: ads in a flyer for a charity bake sale are different than full-blown ad space on a news website.
Distinguish Ads vs. Sponsorships
Not all revenue that looks like advertising is treated the same. A “qualified sponsorship payment” — such as a donor’s donation in return for simple logo recognition, not promotional advertising — may remain tax-exempt. If the payment includes endorsements, price promotions, or marketing copy, it’s likely advertising, potentially subject to UBIT.
Maintain Separate Accounting for Unrelated Business Income (UBI)
If you generate any income from unrelated business activities, you must track it separately, report it on IRS Form 990-T, and be prepared to pay tax at the corporate rate on net profits.
Keep Ad Revenue Below Risk-Thresholds (If Possible)
While the IRS doesn’t publish a hard “safe” limit, some nonprofit advisors recommend keeping unrelated business revenue — including ad income — to a minority of overall revenue to avoid triggering scrutiny.
Consider Hybrid or Subsidiary Models for High-Volume Publishing
If your publication or news operation has grown large, one strategy is to spin off a separate, taxable for-profit subsidiary for the ad/publishing business — while keeping the charitable entity focused on mission-driven work. This separation can insulate the nonprofit’s exempt status.
What This Means for Funders, Donors & Readers
For grantmakers, foundations, and individual donors — many of whom care deeply about sustaining nonprofit journalism — this data should offer reassurance:
Donating to a well-managed nonprofit news outlet remains low-risk from a compliance perspective.
Advertising revenue can supplement donor funding and promote long-term sustainability without automatically triggering tax liability — if done properly.
Supporters should pay attention to transparency: how ad revenue is reported, how UBI is handled, and whether financial statements remain clear.
And, for readers of nonprofit journalism, the takeaway is simple: ad-supported independent reporting doesn’t necessarily mean compromised mission.
Selling advertising doesn’t automatically disqualify a nonprofit from its tax-exempt status — but navigating the rules requires care, clarity, and intentional structure. The recent report shows: lots of nonprofit news outlets already sell ads, and most keep their exempt status — because they understand the difference between promoting their mission and running a business.
For nonprofits, advisors, funders, and readers alike, that difference matters.
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