Member bereavement fund denied Section 501(c)(3) status

Plain-English summary

A membership organization sought Section 501(c)(3) status for a bereavement
fund. Members paid an enrollment fee and later contributions, and benefits
were paid when a member or one of up to five named relatives died. The payments
helped cover funeral costs and emergency international travel. The IRS found
that this arrangement primarily benefited preselected members and their
families rather than serving a charitable class or the public. It also found
that the organizing document described a social-welfare and member-support
purpose without limiting the corporation to Section 501(c)(3) purposes. The
organization therefore failed both the organizational and operational tests,
and the IRS denied exemption.

Ruling snapshot

• Question: Did a member-funded bereavement program serve public charitable interests and qualify under IRC § 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (b), (c), and (d); Rev. Rul. 67-367; Rev. Rul. 69-175

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
PO Box 2508
Cincinnati, OH 45201

Date: July 21, 2021

Employer ID number:

Form you must file:

Tax years:

Person to contact:
Name:
ID number:
Telephone:

Release Number: 202141026
Release Date: 10/15/2021
UIL: 501.33-00, 501.35-00

Dear

This letter is our final determination that you don’t qualify for exemption from federal income tax
under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section
501(c)(3). Recently, we sent you a proposed adverse determination in response to your
application. The proposed adverse determination explained the facts, law, and basis for our
conclusion, and it gave you 30 days to file a protest. Because we didn’t receive a protest within
the required 30 days, the proposed determination is now final.

Because you don’t qualify as a tax-exempt organization under IRC Section 501(c)(3), donors
generally can’t deduct contributions to you under IRC Section 170.

We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c),
by sending them a copy of this final letter along with the proposed determination letter.

You must file the federal income tax forms for the tax years shown above within 30 days from
the date of this letter unless you request an extension of time to file. For further instructions,
forms, and information, visit www.irs.gov.

We’ll make this final adverse determination letter and the proposed adverse determination letter
available for public inspection after deleting certain identifying information, as required by IRC
Section 6110. Read the enclosed Notice 437, Notice of Intention to Disclose, and review the two
attached letters that show our proposed deletions. If you disagree with our proposed deletions,
follow the instructions in the Notice 437 on how to notify us. If you agree with our deletions, you
don’t need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have
questions about your federal income tax status and responsibilities, call our customer service

Letter 4038 (Rev. 1-2021)
Catalog Number 47632S

number at 800-829-1040 (TTY 800-829-4933 for deaf or hard of hearing) or customer service for
businesses at 800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Notice 437
Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 1-2021)
Catalog Number 47632S

Department of the Treasury
Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201

Date: 6/18/21

Employer ID number:

Contact person/ID number:

Contact telephone number:

Contact fax number:

Legend:
X = Date
Y = State

q dollars = Amount
r dollars = Amount

UIL:
501.33-00
501.35-00

Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don’t qualify for exemption under IRC Section 501(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues

Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below.

Facts

You submitted Form 1023-EZ Streamline Application for Recognition of Exemption Under Section 501(c)(3) of
the Internal Revenue Code.

You attested on Form 1023-EZ, that you are organized and operated exclusively to further charitable purposes.
You also attested that you have not conducted and will not conduct prohibited activities under IRC Section 501
(c)(3).

During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.
You were formed as a corporation on X in the State of Y. Your organizing document, Certificate of Formation,
states you are a social welfare organization and indicates your purpose is to help in rallying the community in
times of bereavement affecting registered members by consolidating moral and financial support whenever
tragedy hits. Your mission is to help bereaved members by providing prayer meetings, fellowship and financial
support during bereavement to help cover for emergency costs which often include international travel and
funeral costs.

To join, individuals pay a one-time nonrefundable fee of q dollars and submit a notarized application form that
includes names of approved family members who qualify as bereavement beneficiaries. You further indicated

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

2

that qualified bereavement beneficiaries are the individual member and up to five direct family members which
consist of the spouse, children, parents, and siblings. In addition, your members are predominantly immigrants
with relatives outside the United States and are from families who have known each other and interacted in the
community.

You explained that when a member has a death in the family, they inform your board chairperson or your
secretary. The board then verifies that the deceased person’s name is included in the submitted notarized
application form. The member is then required to submit a copy of an official document such as a death
certificate, burial permit or any government issued or endorsed document confirming the death. The board may
also ask for additional evidence including calling people who know the member. The board then announces the
death to the entire group on the group’s private chat room site. The payment is approved and released to the
member via a check or traceable electronic transfer. To ensure transparency, the group financial report is sent
to all members on a monthly basis and a replenishment payment activity is posted on the group private chat
room site for all members to see. Your bank statements are also sent to all members.

The bereavement payment is calculated by multiplying the number of members by r dollars.
Then, each member contributes r dollars to replenish the money that was disbursed.

Your revenue is from member fees and contributions. Expenditures consist of bereavement payments. However,
you do have some administrative costs. Bereavement benefits cannot be used for business investments, paying
off debt, legal fees, tuition or recreational activities.

You also stated that when a death occurs in a family of one of your members, there is added stress due to
distance and the cost of emergency international travel. The members usually don’t have the means to respond
to these emergencies and often ask for help from friends in the community.

Law

IRC Section 501(c)(3) provides for the recognition of exemption of organizations that are organized and
operated exclusively for religious, charitable or other purposes as specified in the statute. No part of the net
earnings may inure to the benefit of any private shareholder or individual.

Treasury Regulation (Treas. Reg.) Section 1.501(c)(3)-1(a)(1) states that in order to qualify under IRC Section
501(c)(3), an organization must be both organized and operated exclusively for one or more exempt purposes. If
an organization fails to meet either the organizational or operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) states:
An organization is organized exclusively for one or more exempt purposes only if its articles of organization:
    (a) Limit the purposes of such organization to one or more exempt purposes; and
    (b) Does not expressly empower the organization to engage, otherwise than as an insubstantial part of
its activities, in activities which in themselves are not in furtherance of one or more exempt purposes.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) provides that an organization will be regarded as operated exclusively
for one or more exempt purposes only if it engages primarily in activities which accomplish one or more of
such exempt purposes specified in IRC Section 501(c)(3). An organization will not be so regarded if more than
an insubstantial part of its activities is not in furtherance of an exempt purpose.

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3

Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) provides that an organization is not organized and operated
exclusively for charitable purposes unless it serves a public rather than a private interest.

Revenue Ruling (Rev. Rul.) 67-367, 1967-2 C.B. 188, describes an organization whose sole activity was the
operation of a “scholarship plan” for making payments to pre-selected, specifically named individuals. The
organization did not qualify for exemption under IRC Section 501(c)(3) because it was serving the private
interests of its subscribers rather than public or charitable interests.

Rev. Rul. 69-175, 1969-1 C.B. 149, describes an organization which was formed by parents of pupils attending
a private school to provide bus transportation to and from the school for those children whose parents belong to
the organization. The organization did not qualify for exemption under IRC Section 501(c)(3) because it served
a private rather than public interest.

Application of law

You do not meet the requirements for recognition of tax exemption under IRC Section 501(c)(3) because you
fail the operational test and the organizational test as described in Treas. Reg. Section 1.501(c)(3)-1(a)(1).

Your organizing document states that your purpose is to help in rallying the community in times of bereavement
affecting registered members by consolidating moral and financial support whenever tragedy hits. Because your
organizing document does not limit your purposes to those described in Treas. Reg. Section
1.501(c)(3)-1(b)(1)(i), you fail the organizational test under IRC Section 501(c)(3).

You conduct an activity that provides direct benefits to members and their family members that is more than
insubstantial in nature. For this reason, you are not operating exclusively for exempt purposes as described in
Treas. Reg. Section 1.501(c)(3)-1(c)(1).

You are similar to the organization described in Revenue Ruling 67-367. Like that organization, your activities
serve to benefit your members and their families rather than benefit the public. For example, you are providing
financial support during bereavement to help cover for emergency costs which often include international travel
and funeral costs. There is no charitable intent to the payments. The payment of these types of benefits to pre-
selected, specifically named individuals serves a private interest rather than a public interest. Treas. Reg.
Section 1.501(c)(3)-1(d)(1)(ii) states that an organization is not operated exclusively for one or more exempt
purposes unless it serves a public rather than a private interest.

The group of parents in Revenue Ruling 69-175 provided a cooperative service for themselves and thus served
their own private interests. Like that organization, you were formed to provide benefits to your members. In
your case, you are primarily providing financial assistance for the funeral expenses of members and their
families. The payments serve a private rather than a public interest. Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii)
states that an organization is not operated exclusively for one or more exempt purposes unless it serves a public
rather than a private interest.

Conclusion

Based on the facts presented, you do not qualify for exemption from federal income tax as an organization
described in IRC Section 501(c)(3). You are not organized or operated exclusively for exempt purposes as set
forth in Section 501(c)(3). You further the private interests of your members and are operating for substantial

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

4

non-exempt purposes. Therefore, you do not qualify for exemption under Section 501(c)(3). Donations to you
are not deductible to the donor.

If you agree

If you agree with our proposed adverse determination, you don’t need to do anything. If we don’t hear from
you within 30 days, we’ll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree

You have a right to protest if you don’t agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

• Your name, address, employer identification number (EIN), and a daytime phone number

• A statement of the facts, law, and arguments supporting your position

• A statement indicating whether you are requesting an Appeals Office conference

• The signature of an officer, director, trustee, or other official who is authorized to sign for the
  organization or your authorized representative

• The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven’t
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We’ll review your protest statement and decide if you gave us a basis to reconsider our determination. If so,
we’ll continue to process your case considering the information you provided. If you haven’t given us a basis
for reconsideration, we’ll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Decision on Tax-Exempt Status.

If you don’t file a protest within 30 days, you can’t seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2).

Where to send your protest

Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K

5

U.S. mail:                              Street address for delivery service:

Internal Revenue Service                Internal Revenue Service
EO Determinations Quality Assurance     EO Determinations Quality Assurance
Mail Stop 6403                          550 Main Street, Mail Stop 6403
P.O. Box 2508                           Cincinnati, OH 45202
Cincinnati, OH 45201

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-
pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you’ve tried but haven’t
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 11-2018)
Catalog Number 47628K