Cemetery operator denied section 501(c)(3) status

Plain-English summary

A nonprofit cemetery operator applied for recognition under section 501(c)(3). Its activities consisted of selling burial plots, digging graves, maintaining cemetery property, offering burial and cremation options, and investing funds for those purposes, with fees based on what other cemeteries charged. The IRS concluded that these cemetery activities were a substantial nonexempt purpose and were not charitable merely because all revenue supported the cemetery. Unlike cemetery organizations that advanced specific religious burial practices, this organization described no religious purpose. The IRS denied exemption and made the determination final after the organization did not protest within 30 days.

Ruling snapshot

• Question: Does the cemetery operator qualify for exemption under section 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 79-359; Linwood Cemetery Association v. Commissioner; Better Business Bureau v. United States

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 08/05/2024
IRS Tax Exempt and Government Entities Employer ID number:

Person to contact:

Release Number: 202444012
Release Date: 11/1/24
UIL Code: 501.03-00, 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 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
Letter 4038

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

Department of the Treasury
Internal Revenue Service
Cincinnati, OH 45201
Date: 06/06/2024

Employer ID number:

Person to contact:

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

UIL:
501.03-00
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, Streamlined Application for Recognition of Exemption Under Section 501(c)(3)
of the Internal Revenue Code.

You attest that you were incorporated 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 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 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

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

insubstantially

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

2

• 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.

On the Form 1023-EZ, you did not provide an activity description. In the activity description box, you provided
your name and principal place of business.

Detailed information was subsequently requested. In your response you state you are a nonprofit corporation,
and you exist perpetually to provide for the sale of burial plots, the digging of graves, maintenance and care of
the real estate set aside for this purpose, and investment and reinvestment of funds to be used for this purpose.
In D, you purchased some acres of land for future expansion to further your purpose.

You provide grave lots that are available for casket burials for people who seek traditional interment. For
people who prefer cremation, you offer other options. Fees are charged for burials based on what other
cemeteries charge for the same services. All your revenue and expenses are used for your purpose of operating
and maintaining a cemetery.

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, in which no part of the net earnings
inures to the benefit of any private shareholder or individual.

Treasury Regulation Section 1.501(c)(3)-1(a)(1) provides that, for an organization to be exempt and described
in IRC Section 501(c)(3), that 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 that accomplish one or more of such
exempt purposes specified in Section 501(c)(3) of the Code. 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) provides the term "charitable" is used in IRC Section 501(c)(3) in its
generally accepted legal sense and includes relieving the poor and distressed or the underprivileged, combating
community deterioration, lessening neighborhood tensions, and eliminating prejudice and discrimination.

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.

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

3

In Passaic United Hebrew Burial Association v. United States, 216 F. Supp. 500 (1963), the court held that a
synagogue that provides Hebrew funerals and burials for fees to members of the Jewish religion may qualify for
exemption under IRC Section 501(c)(3).

In Linwood Cemetery Association v. Commissioner, 87 T.C. 1314 (Tax 1986), the court held that cemetery
activities such as selling plots, markers, evergreens, crypts, vaults, and perpetual and special care services have
not been found to be charitable activities. These cemetery activities are far beyond what is required to protect
public health and constitute a nonexempt set of activities that is substantial in nature which destroys the
exemption under IRC Section 501(c)(3).

In Better Business Bureau of Washington D.C. Inc. v. United States, 326 U.S. 279 (1945), the Supreme Court of
the United States interpreted the requirement in IRC Section 501(c)(3) that an organization be “operated
exclusively” by indicating that an organization must be exclusively devoted to exempt purposes. The presence
of a single non-exempt purpose, if more than insubstantial in nature, will destroy the exemption regardless of
the number and importance of truly exempt purposes.

Application of law

IRC Section 501(c)(3) sets forth two main tests for qualification of exempt status. Treas. Reg. Section
1.501(c)(3)-1(a)(1) states that an organization must be both organized and operated exclusively for purposes
described in Section 501(c)(3).

Your sole activity and purpose is the operation of a cemetery for the sale of burial plots, the digging of graves,
maintenance and care of the cemetery, and investment and reinvestment of funds for the care of the cemetery. In
Linwood Cemetery Association, the court held that these type of cemetery activities are not considered exempt
activities under IRC Section 501(c)(3). Also, see Treas. Reg. Section 1.501(c)(3)-1(d)(2).

The organizations described in Rev. Rul. 79-359 and Passaic United Hebrew Burial Association were granted
exemption under IRC Section 501(c)(3) even though their cemetery activities were like yours. However, these
organizations were found to be operating exclusively for one or more exempt purposes. Specifically, these
organizations’ primary purpose was the advancement of religion. Your primary purpose is operating and
maintaining a cemetery. See Treas. Reg. Section 1.501(c)(3)-1(c)(1).

In Better Business Bureau of Washington D.C. Inc, the Supreme Court of the United States held that the
presence of a single non-exempt purpose, if more than insubstantial in nature, will destroy the exemption.
Operating and maintaining a cemetery, absent any other purpose as described in IRC Section 501(c)(3), is
considered a substantial non-exempt activity.

Conclusion

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

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.

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

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

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.

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

5

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