IRS denies 501(c)(3) status to a cemetery organization

Plain-English summary

An organization whose only purpose is to hold title to and preserve a cemetery applied to be recognized as a tax-exempt charity under § 501(c)(3), using the streamlined Form 1023-EZ. The IRS denied the application. It failed the organizational test because its articles of incorporation limit its purpose to owning and preserving a cemetery, which is not one of the exempt purposes § 501(c)(3) requires. It also failed the operational test because its sole activity, selling and maintaining burial lots for the public, serves a substantial non-exempt purpose. The IRS first sent a proposed denial (Letter 4034); the organization did not file a protest within 30 days, so the denial became final (Letter 4038). Because the organization is not a § 501(c)(3) charity, donors generally cannot deduct contributions to it under § 170. This matters because running a cemetery is not by itself a charitable activity, so a cemetery group cannot qualify as a § 501(c)(3) organization on that basis alone.

Ruling snapshot

• Question: Does an organization whose only activity is owning and operating a cemetery qualify for exemption under § 501(c)(3)?
• Outcome: Denied (final adverse determination; failed both the organizational and operational tests)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a), (b), (c), (d); Better Business Bureau of Washington, D.C., Inc. v. United States, 326 U.S. 279 (1945)

Full text (IRS public release)

Department of the Treasury                    Date:
Internal Revenue Service                      05/31/2022
Tax Exempt and Government Entities

IRS   PO Box 2508                             Employer ID number:
      Cincinnati, OH 45201                    Form you must file:
Number: 202234007                             Tax years:

Release Date: 8/26/2022

                                              Person to contact:

UIL: 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
      PO Box 2508
IRS   Cincinnati, OH 45201
Date: September 21, 2021

Employer ID number:

Person to contact:
Name:
ID number:
Telephone:
Fax:
Legend:                          UIL:
E = Date                         501.00-00
F = State                        501.03-00
G = City, State                  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 attested that you are organized and operated exclusively to further charitable
purposes and that you have not conducted and will not conduct prohibited activities under IRC Section
501(c)(3). You indicated on the Form 1023-EZ that your mission is to hold fee simple title to, own, and
preserve a cemetery.

During the review of your Form 1023-EZ, detailed information was requested to supplement the above
information. You submitted your Articles of Incorporation that were filed on E in the state of F which state that
your purpose is to hold fee simple to, own, and preserve a cemetery in G. You further stated that you manage
a very old, rural cemetery by selling burial lots and maintaining the land.

You are supported by sale of burial space and an annual trust fund stipend. On occasion you may receive a
small donation from the public to cover a shortfall. Lot fees are set by your board of directors and vary based on
amount of spaces purchased. Expenses include lawn care, insurance, and electric.

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


Law

IRC Section 501(c)(3) provides for the exemption from federal income tax of organizations 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 qualify under 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 or operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i) provides that an organization is organized exclusively for one or
more exempt purposes only if its articles of organization limit the purposes of such organization to one or
more exempt purposes; and do not expressly empower the organization to engage, otherwise than as an
insubstantial part of its activities, in activities which in themselves are not in furtherance of one or more
exempt purposes.

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 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) 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.

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 and importance of truly exempt purposes.

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

Your organizing document states that your purpose is to hold fee simple to, own, and preserve a cemetery. As
explained in Treas. Reg. Section 1.501(c)(3)-1(b)(1)(i), you do not meet the organizational test because your
articles do not limit your purposes to one or more exempt purposes under IRC Section 501(c)(3).

Based on the information submitted, you have failed to establish that you are operated exclusively for exempt
purposes under IRC Section 501(c)(3). Your sole activity is the operation of a cemetery for which you sell lots
to the public. This activity as described does not further an exclusively charitable purpose as described in Treas.
Reg. Section 1.501(c)(3)-1(d)(2). Thus, your primary activity serves a substantial non-exempt purpose and
precludes exemption under Section 501(c)(3). (Treas. Reg. Section 1.501(c)(3)-1(c)(1)).

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


Like the organization in Better Business Bureau, you are not operating exclusively for exempt purposes under
IRC Section 501(c)(3) because your only activity furthers a substantial non-exempt purpose.

Conclusion

Based on the information submitted, you do not qualify for exemption under IRC Section 501(c)(3). You do not
meet the organizational test because your articles do not limit your purposes to one or more exempt purposes.
You do not meet the operational test because you are operated for a substantial non-exempt purpose.

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

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. 04-2021)
Catalog Number 47628K