Rural cemetery denied section 501(c)(3) status

Plain-English summary

A nonprofit operating a small rural cemetery applied for section 501(c)(3) recognition. Its governing document was incomplete because it lacked signatures from at least two authorized individuals, and the formation date in that document differed from the date reported in the application. The organization sold burial plots, collected donations, paid cemetery expenses, and used all income and resources to operate and maintain the cemetery. The IRS concluded that the defective document failed the organizational test and that operating a cemetery without serving a charitable class or advancing religion was a substantial nonexempt purpose. It denied exemption and made the determination final after the organization did not protest within 30 days.

Ruling snapshot

• Question: Does the rural cemetery organization qualify for exemption under section 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC §§ 501(c)(3), 501(c)(13); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 79-359; Linwood Cemetery Association v. Commissioner

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 08/01/2024
Tax Exempt and Government Entities Employer ID number:

IRS

Person to contact:

Release Number: 202443025
Release Date: 10/25/2024
UIL Code: 501.00-00, 501.03-00, 501.03-30

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 Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 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 number at 800-829-1040 (TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Letter 437

Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 11-2021)

Catalog Number 47632S

Department of the Treasury
Internal Revenue Service

IRS
Date: 06/13/2024

Employer ID number:

Person to contact:

Name:
ID number:
Telephone:
Fax:
Legend:
B = Date
C = State
D = Date

e dollars = Dollar Amount

UIL:
501.00-00
501.03-00
501.03-30

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, Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code.

You attest that you were formed on B, in the state of C. You attest that you have the necessary organizing document, that your organizing document limits your purposes to one or more exempt purposes within the meaning of the IRC Section 501(c)(3), that your organizing document does not expressly empower you to engage in activities, other than an insubstantial part, that are not in furtherance of one or more exempt purposes, and that your organizing document contains the dissolution provision required under Section 501(c)(3).

You attest that you are organized and operated exclusively to further charitable purposes. You attest that you have not conducted and will not conduct prohibited activities under IRC Section 501(c)(3). Specifically, you attest you will:

• Refrain from supporting or opposing candidates in political campaigns in any way
• Ensure that your net earnings do not inure in whole or in part to the benefit of private shareholders or individuals

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

2

• Not further non-exempt purposes (such as purposes that benefit private interests) more than insubstantially

• Not be organized or operated for the primary purpose of conducting a trade or business that is not related to your exempt purpose(s)

• Not devote more than an insubstantial part of your activities attempting to influence legislation or, if you made a Section 501(h) election, not normally make expenditures in excess of expenditure limitations outlined in Section 501(h)

• Not provide commercial-type insurance as a substantial part of your activities

Your narrative, provided with Form 1023-EZ, states you operate and maintain a rural cemetery. Detailed information was subsequently requested.

You signed, under penalties of perjury, the attestation that your organizing document was amended to include proper purpose and dissolution clauses. However, the organizing document provided was not complete because it was not signed by at least two authorized individuals. Moreover, you attest that you formed on B, but the organizing document you provided shows a formation date of D.

You provide all maintenance and operational duties for a small rural cemetery. You handle all financial activities for the cemetery, including income collections from plot sales, receipt of donations, and payment of operational expenses. Officers and some volunteers perform the cemetery’s activities.

You operate from income derived from plot sales and donations. You charge e dollars per plot and revisit the price annually. The price is set by your board, which meets regularly to discuss the operation and maintenance of the cemetery. All income and resources are used to operate and maintain the cemetery.

You are applying for IRC Section 501(c)(3) because you want the contributions donated to you to be tax deductible.

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 Section 1.501(c)(3)-1(a)(1) states that, in order 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.

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

3

Revenue Ruling 79-359, 1979-2 C.B. 226, held that an organization whose purpose is to provide traditional burial services that directly support and maintain basic tenets and beliefs of a religion regarding burial of its member may qualify for exemption under IRC Section 501(c)(3). Through the provision of burial services to members of a religion in compliance with the detailed requirements of religious laws, the organization is preserving and perpetuating traditional religious customs and obligations. The organization is accomplishing a charitable purpose by contributing to the advancement of religion.

In Better Business Bureau of Washington D.C., Inc. v. United States, 326 U.S. 279, 66 S. Ct. 112, 90 L. Ed. 67, 1945 C.B. 375 (1945), the Supreme Court held that the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly exempt purposes.

In Linwood Cemetery Association v. Commissioner, 87 T.C. 1314 (Tax 1986), the court held that because the organization’s activities do not amount to relief of the poor, and the non-exempt activities of selling plots, markers, evergreens, crypts, vaults, and perpetual and special care services are not merely incidental, the organization is more suited to classification under IRC Section 501(c)(13) than under IRC Section 501(c)(3). The cemetery activities are far beyond what is required to protect public health and constitute a non-exempt set of activities that is substantial in nature which must destroy the exemption under Section 501(c)(3).

Application of law

IRC Section 501(c)(3) sets forth two main tests for qualification of exempt status. As stated in Treas. Reg. 1.501(c)(3)-1(a)(1), an organization must be both organized and operated exclusively for purposes described in Section 501(c)(3). You have not satisfied the organizational nor the operational tests. Your organizing document is not properly adopted because it does not have the signatures of at least two authorized individuals. You also fail the operational test as you are not operated for an exempt purpose under Section 501(c)(3). Your main activity is to operate a rural cemetery.

You are like the organization described in Linwood Cemetery Association v. Commissioner because cemetery activities are not charitable in nature, and you did not provide any evidence that you operate for a charitable class. You are not operated exclusively for an exempt purpose within the meaning of IRC Section 501(c)(3). As a result, you have not satisfied the operational test per Treas. Reg. Section Treas. Reg. Section 1.501(c)(3)-

1(c)(1).

You are not like the organization described in Rev. Rul. 79-359, 1979-2 C.B. 226 because you do not contribute to the advancement of religion. Your main activity is to maintain and operate a rural cemetery, that is a non- exempt activity under IRC Section 501(c)(3). Thus, you do not operate exclusively for an exempt purpose within the meaning of Section 501(c)(3).

Similar to the organization in Better Business Bureau of Washington, D.C., Inc., you are not operating exclusively for exempt purposes under IRC Section 501(c)(3) because your main activity is to further the non- exempt purpose of operating a rural cemetery. The presence of this non-exempt purpose prevents exemption

under Section 501(c)(3).

Conclusion
Based on the facts and circumstances presented, you do not satisfy the organizational and operational

requirements within the meaning of IRC Section 501(c)(3). Your only activity is operating and maintaining a rural cemetery. Therefore, you do not qualify for exemption under Section 501(c)(3).

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

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 Determination 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:

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

PO Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K

5

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. 01-2021)

Catalog Number 47628K