Cemetery denied section 501(c)(3) status

Plain-English summary

An organization that maintains a cemetery in a rural, economically depressed county applied for recognition under section 501(c)(3). It provides perpetual care without a separate fee but sells burial plots, and those sales make up a substantial portion of its revenue. The IRS concluded that cemetery maintenance and plot sales are not inherently charitable and primarily provide a private benefit to relatives of the deceased. The organization also did not show that it advanced religion or otherwise served an exclusively charitable purpose. The IRS denied exemption for a substantial nonexempt purpose, and the denial became final after the organization did not protest within 30 days.

Ruling snapshot

• Question: Does an organization that maintains a cemetery and sells burial plots qualify under section 501(c)(3)?
• Outcome: Denied
• Key authorities: IRC §§ 170, 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Ruls. 65-6, 69-256, and 79-359; Better Business Bureau v. United States; Linwood Cemetery Association v. Commissioner

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service 09/03/2024

Tax Exempt and Government Entities Employer ID number:
IRS PO Box 2508

Cincinnati, OH 45201

Person to contact:

Release Number: 202448015
Release Date: 11/29/24
UIL Code: 501.36.01, 501.13-00

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: 06/18/2024

Employer ID number:

Person to contact:
Name:
ID number:
Telephone:
Fax:

Legend: UIL:

X = Date 501.36-01
Y = State 501.13-00
z dollars = dollar amount

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 X, in the state of Y. 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 IRC 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

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• 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

During review of your Form 1023-EZ, detailed information was requested supplemental to the above attestations.

You provide perpetual care and maintenance of a cemetery in a rural and economically depressed county of Y. You do not charge fees for the perpetual care and maintenance, nor do you sell monuments, vaults, or flowers; however, you do sell burial plots in the cemetery for a one-time fee of z dollars. You stated these sales are limited to the cemetery's available plots, but you did not provide a specific number or acreage for these remaining plots. You do not operate a mortuary.

Your revenues showed gross receipts from sales (i.e., burial plots) as a substantial portion of your total revenues. Your other revenues included donations and contributions from the public and a small amount of investment income. Most of your expenses are for mowing and maintenance of the cemetery; a small percentage was allocated toward occupancy expenses.

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.

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

Treas. Reg. Section 1.501(c)(3)-1(d)(2) defines the term "charitable" as including the relief of the poor and distressed or of the underprivileged, and the promotion of social welfare by organizations designed to lessen neighborhood tensions, to eliminate prejudice and discrimination, or to combat community deterioration. The term "charitable" also includes lessening of the burdens of government.

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

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Revenue Ruling 65-6, 1965-1 C.B. 229, held that an organization formed to operate and maintain a cemetery for family members was not exempt under IRC Section 501(c)(3).

Rev. Rul. 69-256, 1969-1 C.B. 152, held that an organization formed to make annual payments for the perpetual care of a burial lot was not exempt under IRC Section 501(c)(3).

Rev. Rul. 79-359, 1979-2 C.B. 226, held that an organization formed to provide traditional burial services to support and maintain the basic tenets and beliefs of a religion regarding the burial of its members was exempt 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 devoted to exempt purposes exclusively. The presence of a single non-exempt purpose, if more than insubstantial 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 cemetery activities, such as selling plots, markers, evergreens, vaults, and perpetual and special care services, are not inherently charitable. Furthermore, these activities were held to extend beyond what is required to protect public health and, therefore, constitute a nonexempt set of activities that fail to support exemption under IRC Section 501(c)(3).

Application of law

A ruling on exempt status is based solely on facts and representations in the administrative file. You have not provided supporting documentation to establish you meet the requirements of IRC Section 501(c)(3). Section 501(c)(3) sets forth two main tests for qualification for 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 do not meet the operational test under IRC Section 501(c)(3) because you are not operating exclusively for charitable purposes as required under Treas. Reg. Section 1.501(c)(3)-1(c)(1). Your sole activity is the operation of a cemetery, for which you sell lots to the public. As provided in Rev. Rul. 65-6 and 69-256, perpetual care and maintenance of a cemetery is generally not considered a section 501(c)(3) purpose. This is a private benefit to the relatives of the deceased (whether of the same family or not) and a substantial non-exempt purpose, which the demographics of the region do not override. The location of the cemetery does not automatically confer charitable intent upon the operations within it. Therefore, you have not established that your operations accomplish exclusively charitable purposes or serve public rather than private interests as required under Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) and Treas. Reg. Section 1.501(c)(3)-1(d)(2).

In addition, you have not established your operations contribute to the advancement of religion as in Rev. Rul. 79-359. Unlike the organization in this ruling, your operations are not limited to members of a specific religion to further the requirements of religious laws; therefore, you are not furthering charitable purposes by preserving or perpetuating traditional religious customs and obligations through the operation of your cemetery.

Like the organizations in Better Business Bureau and Linwood Cemetery Association, you are not operating exclusively for exempt purposes under section 501(c)(3) because your only activity furthers a substantial non-

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

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exempt purpose. As provided in Linwood Cemetery Association, perpetual care and selling lots to the public are not inherently charitable. Further, your plot sales represent more than an incidental portion of your total revenue and, therefore, constitute more than an insubstantial part of your operations.

Conclusion

Based on the information submitted, you do not qualify for exemption under IRC Section 501(c)(3). You do not meet the operational test because you are operated for a substantial non-exempt purpose. Donors may not deduct contributions to you.

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:

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

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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.

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