The Weston Mercury's office in Weston-super-MareCredit: By Geof Sheppard , CC-BY-SA-3.0 or CC-BY-2.5, via Wikimedia Commons
The Weston Mercury ran the poster on billboards outside a number of newsagents in March across its circulation area, which covers Weston-super-Mare and the surrounding North Somerset communities.
The billboard accompanied a front-page story published on 22 March under the headline "Gypsy camps right next door to new homes".
A spokesperson for Avon and Somerset Police said the matter had been referred to the Crown Prosecution Service after they received a number of complaints on 22 March.
A Daily Mail report stated that a file had been passed to the Crown Prosecution Service, but a spokesperson for the CPS told Journalism.co.uk it had not received anything from Avon and Somerset Police beyond a request for "initial advice".
"We have been approached for initial advice but at this stage, the case has not yet been filed with us."
The paper has since removed the billboards and issued an apology on 22 March, the same day the police began receiving complaints, but if the case is filed it will be up to the CPS to decide whether to press charges.
The issue was reported to the police by North Somerset Green Party councillor Tom Leimdorfer, whose ward of Congresbury has a significant Romany Gypsy community.
He described the headline as "thoughtless sensationalism" and called on the paper to ensure staff are given proper equality and diversity training.
"It was a misleading headline. If it had read 'Gypsy camps next to new homes', I wouldn’t have had so much of a problem.
"But what the paper said has a different feel about it, it connotes fear or that this is something to worry about. You do not identify a racial group with a particular negative image."
Leimdorfer added it was not the first time the Mercury had been forced to issue an apology over a story after it ran the headline "Pole Pervert" in January 2008.
The Archant-owned paper has printed a page three apology after removing the billboards, admitting the wording was "inappropriate and may have caused offence".