IRS denies 501(c)(3) exemption to a group whose only activity is maintaining a family cemetery

Plain-English summary

An organization applied for tax-exempt charitable status under section 501(c)(3), and the IRS turned it down. The group's sole activity is preserving and maintaining a family cemetery: members of one family sit on its board, handle grounds and tombstone upkeep, and want to preserve the family's history. To be exempt, an organization must be operated "exclusively" for recognized exempt purposes, and maintaining a cemetery is not one of them. The IRS found the group served the private interests of the family rather than a charitable purpose, and reported no educational programs, so it failed the operational test. It cited Rev. Rul. 65-6 (a family cemetery denied exemption) and the Supreme Court's Better Business Bureau case (a single substantial non-exempt purpose defeats exemption). Because the group did not protest the earlier proposed denial within 30 days, this became a final adverse determination, which means donors generally cannot deduct contributions under section 170. The release includes both the final letter and the attached proposed adverse determination letter that lays out the full reasoning.

Ruling snapshot

• Question: Does an organization whose only activity is maintaining a family cemetery qualify for exemption under section 501(c)(3)?
• Outcome: Denied (final adverse determination; fails the operational "exclusively" test, serves private family interests)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (c)(1), (d)(2); Rev. Rul. 65-6; Better Business Bureau v. United States, 326 U.S. 179

Full text (IRS public release)

Department of the Treasury
internal Revenue Service Date: August 10, 2021
Tax Exempt and Government Entities

Employer ID number:
IRS po Box 2508
Cincinnati, OH 45201 Form you must file:
Tax years:
Number: 202144029 ask to contact:
. ame:
Release Date: 11/5/2021 1D number
Telephone:

UIL Code: 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. 5-2020)
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. 5-2020)
Catalog Number 47632S

Department of the Treasury

Internal Revenue Service

Cincinnati, OH 45201
Date: May 5, 2021
Employer ID number:
Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend: UIL:

B = date 501.35-00
C = state

D=name

E=LLC

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.

During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.
You were formed as a corporation on B in the state of C.

You preserve, maintain and provide general upkeep for the D family cemetery. Members of the D family serve
on your governing body and are responsible for cemetery maintenance and tombstone upkeep. Grounds
maintenance is conducted weekly during warm seasons and tombstone upkeep is provided annually or on an as
needed basis.

The cemetery, which is owned by E, consists of a little over an . Burials include family members of
D along with community members. You intend to use it to educate current and future
generations of D on their history and to preserve the history of the community as it pertains to D. The cemetery
is open to the public but is not on the National Registry of Historic Places.

All your revenue is received from donations and all expenses are for maintenance and tax return preparation.

Letter 4038 (Rev. 5-2020)
Catalog Number 47632S

Law

IRC Section 501(c)(3) provides, in part, for the exemption from federal income tax of organizations organized
and operated exclusively for charitable, religious or educational purposes, no part of the net earnings of which
inure to the benefit of any private shareholder or individual.

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

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.

Treas. Reg. Section 1.501(c)(3)-1 (d)(2) defines charitable as including the following purposes: Relief of the
poor and distressed or of the underprivileged; advancement of religion; advancement of education or science;
erection or maintenance of public buildings, monuments, or works; lessening of the burdens of Government;
and promotion of social welfare by organizations designed to accomplish any of the above purposes, or (i) to
lessen neighborhood tensions; (ii) to eliminate prejudice and discrimination; (iii) to defend human and civil
rights secured by law; or (iv) to combat community deterioration and juvenile delinquency.

Rev. Rul. 65-6, 1965-1 C.B. 229- An organization owned, operated, and maintained a cemetery in which only
members of the X family, their descendants, and persons intermarried with descendants of the family were
entitled to be buried. The cemetery was supported by assessments and contributions of the family members. The
Ruling held, the organization does not qualify for exemption from Federal income tax as an organization
described in IRC Section 501(c)(3) or 501(c)(13), nor are contributions to it deductible to donors.

In Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 179 (1945), the Supreme Court
held that the presence of a single non-exempt purpose, if substantial in nature, will destroy a claim for
exemption under IRC Section 501(c)(3) regardless of the number or importance of truly exempt purposes.

Application of law

Treas. Regs. Section 1.501(c)(3)-1(a)(1) states that an organization must be both organized and operated
exclusively for one or more of the purposes specified in IRC Section 501(c)(3) in order to be found exempt
under that section. To satisfy the operational test under Treas. Reg. Section 1.501(c)(3)-1(c)(1) an organization
must establish that it is operated exclusively for one or more exempt purposes. You do not meet this test
because you are operated to maintain a cemetery, which is not a recognized Section 501(c)(3) exempt purpose.
[See Treas. Reg. Section 1.501 (c)(3)-1(d)(2)]. You have not established or reported any educational programs.
Thus, you are not qualified for exemption under Section 501(c)(3).

You are like the organization denied exemption in Rev. Rul. 65-6 because you are maintaining a cemetery in a
similar manner. Although individuals are buried in your cemetery that are not direct family members this is not
enough to overcome the private interests served to the family members of D.

As stated in Better Business Bureau of Washington, D.C.. Inc., the presence of a single non-exempt purpose, if
substantial in nature, will destroy a claim for exemption under IRC Section 501(c)(3). Since maintaining a
cemetery does not further Section 501(c)(3) purposes, you do not qualify for exemption under Section 501(c)(3).

Letter 4038 (Rev. 5-2020)
Catalog Number 47632S

Conclusion

Based on the information submitted, you are not operating exclusively for exempt purposes within the meaning
of IRC Section 501(c)(3). Your only activity is maintaining a cemetery. Therefore, you do not qualify for
exemption under Section 501(c)(3).

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).

Letter 4038 (Rev. 5-2020)
Catalog Number 47632S

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

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 4038 (Rev. 5-2020)
Catalog Number 47632S