Member cemetery denied charitable exemption

Plain-English summary

A nonprofit operated and maintained a cemetery offering affordable burial locations only to members, who had to be descendants or spouses of people connected to specified local places. Membership dues supported the cemetery, and its bylaws restricted funds to cemetery operations, maintenance, and improvements. The IRS concluded that these activities gave more than incidental benefits to a limited group of private individuals rather than serving the public. Unlike religious burial organizations recognized as charitable, the cemetery's member benefits were not incidental to an exempt religious purpose. The IRS denied section 501(c)(3) exemption, and the determination became final when no protest was filed.

Ruling snapshot

• Question: Does a cemetery restricted to a defined membership group operate for public charitable purposes under section 501(c)(3)?
• Outcome: denied
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1; Rev. Rul. 69-175; Rev. Rul. 75-286; Rev. Rul. 79-359; Passaic Hebrew Burial Asso. v. United States, 216 F. Supp. 500 (1963)

Full text (IRS public release)

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

Date:
January 22, 2020

Employer ID number:

Release Number: 202016020
Release Date: 4/17/2020

Contact person/ID number:

UIL Number: 501.03-00, 501.33-00

Contact telephone number:

Form you must file:

Tax years:

Dear                 :

This letter is our final determination that you don’t qualify for tax-exempt status under Internal Revenue Code
(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 can’t deduct
contributions to you under IRC Section 170. You must file federal income tax returns for the tax years listed at
the top of this letter using the required form (also listed at the top of this letter) within 30 days of this letter
unless you request an extension of time to file.

We’ll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection (as required under IRC Section 6110) after deleting certain identifying information. Please
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.

We’ll also notify the appropriate state officials of our determination by sending them a copy of this final letter
and the proposed determination letter (under IRC Section 6104(c)). You should contact your state officials if
you have questions about how this determination will affect your state responsibilities and requirements.

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S

If you have questions about this letter, you can contact the person listed at the top of this letter. If you have
questions about your federal income tax status and responsibilities, call our customer service number at
1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or customer service for businesses at
1-800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Notice 437
Redacted Letter 4036, Proposed Adverse Determination Under IRC Section 501(c)(3)
Redacted Letter 4038, Final Adverse Determination Under IRC Section 501(c)(3) - No Protest

Letter 4038 (Rev. 7-2014)
Catalog Number 47632S

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

Date:
November 14, 2019

Employer ID number:

Contact person/ID number:
Contact telephone number:

Contact fax number:

Legend:                                     UIL:
B = Date                                    501.03-00
C = Date                                    501.33-00
D = State
Y = Place
Z = Place
x dollars = 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, Streamline Application for Recognition of Exemption Under Section 501(c)(3) of
the Internal Revenue Code, on B.

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

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• 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
• 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 were incorporated on C in the State of D and were formed to operate and maintain a cemetery.

Your by-laws state that you provide a suitable and affordable burial location for your members, all of whom are
either direct descendants or the spouses of people who lived at Y or Z or ranches within a one-mile radius of the
cemetery before          . Your by-laws further provide that funds may only be used to operate, maintain, and
improve the cemetery.

You are supported by membership dues in the amount of x dollars per year.

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(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 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 and operated
exclusively for charitable purposes unless it serves a public rather than a private interest.

Revenue Ruling 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.

Revenue Ruling 75-286, 1975-2 C.B. 210, held that a nonprofit organization with membership limited to the
residents and business operators within a city block and formed to preserve and beautify the public areas in the
block, thereby benefiting the community as a whole as well as enhancing the members' property rights, will not

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qualify for exemption under IRC Section 501(c)(3) because the organization was organized and operated for the
benefit of private interests by enhancing the value of members' property.

Revenue Ruling 79-359, 1979-2 C.B. 226, held that an otherwise qualifying 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 members may qualify for exemption under IRC Section 501(c)(3).

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

Application of law
Your activities of operating a cemetery for the benefit of your members provides direct benefits to private
individuals that are more than insubstantial in nature. Therefore, you do not meet the requirements of IRC
Section 501(c)(3) because you are not operating exclusively for exempt purposes as described in Treas. Reg.
Section 1.501(c)(3)-1(c)(1).

You do not meet the provisions of Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii) because, like the organizations
described in Revenue Rulings 69-175 and 75-286, your activities serve to benefit the private interests of your
members rather than the public.

You are dissimilar to the organizations described in Revenue Ruling 79-359 and Passaic Hebrew Burial Asso.
in the sense that the private benefit conferred upon your members is not incidental to exempt purposes. Rather,
your activities serve the private interests of your members.

Conclusion
Based on the above facts and analysis, you are not operated exclusively for an IRC Section 501(c)(3) purpose
because you further the private interests of your members. Therefore, you do not qualify for exemption under
IRC 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

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  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:

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

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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