IRS Audit Fuels Newspapers' Feud p.26

By: Mark Fitzgerald Feds say there wasn't enough 'student involvement' to justify nonprofit status
AN INTERNAL REVENUE Service claim that the Iowa State Daily owes $20,000 in back taxes and penalties is focusing renewed attention on the issue of professionalism at the student paper.
The 10,000-circulation town paper in Ames, Iowa, the Daily Tribune, for several years has argued in and out of court that the 14,000-circulation Iowa State Daily is an unfair competitor that takes advantages of all the subsidies afforded a student newspaper ? ranging from rent-free offices to supplies exempted from the state sales tax ? while being managed by a cadre of full-time professionals.
It is the extent of professional involvement in classified ad sales that is at issue in the IRS claim.
After a recent IRS audit of Iowa State University and its affiliates, the agency concluded that there was not enough student involvement in classified ad sales during the years 1993 to 1995 to meet the standards of a nonprofit corporation established for educational purposes, said John Hobson, president of the Iowa State Daily Publication Board.

IRS Simply Wrong?
Hobson, however, says the IRS conclusion is simply wrong, and that when he meets with IRS agents in Washington, D.C., April 27, he will argue the campus paper owes no money at all.
"The Daily's position is that there was adequate student involvement, even though it looked professional," Hobson said. "The professional in question basically just took calls that came in. . . . The front-end was basically a secretary."
Under the system in place then, Hobson said, students supervised all ad sales, and students were responsible for all solicitation of classified ads.
While defending the past practices, Hobson also noted that the Daily has recently taken steps to formalize student involvement in the business end of the paper. The number of student ad managers has been doubled to four, and the paper has dropped one professional staff person.
In addition, students have taken over some of the functions once performed by former general manager Janette Larkin, who left the paper in February to take a position in the hotel industry, Hobson said. Larkin was a former ad director and vice president of the Daily Tribune who was often the public face of the student paper in the legal and public relations battle with the community paper.
Daily Tribune publisher Gary G. Gerlach declined to comment on the IRS audit of the Iowa State Daily.
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