PLR 202419025          Tax-Exempt Status Denied for Group Selling Burial Plots

5/10/24 (11/13/23)

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 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 did not attest that you are organized and operated to further any other IRC Section 501(c)(3) purpose. You attest that you have not conducted and will not conduct prohibited activities under 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

• 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

You state your mission is to maintain a public cemetery and other related activities including burial. You selected the NTEE code Y50 which is for organizations that maintain cemeteries or provide burial or funeral services.

Detailed information was subsequently requested. In your response you stated that you sell burial plots. The number of sales is approximately D a per year. You research a location for a plot on a map, write the deed, and lay out the location at the cemetery that takes approximately a few hours per sale.

You did not provide any information that:

• The cemetery you maintain has any historic significance

• You bury indigent individuals

• You conduct religious activities.

You state you do not sell monuments, markers, vaults, or flowers, do not operate a mortuary, and do not have any material promoting the sale of lots or solicitation of donations.

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

Treasury Regulation Section 1.501(c)(3)-1(a)(1) states that, 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.

Rev. Rul. 65-6, 1965-1 C.B. 229, describes an organization that owned, operated, and maintained a cemetery in which only members of the X family, their descendants, and persons intermarried with descendants of the family were entitled to be buried. The cemetery was supported by assessments and contributions of the family members. The Ruling held, the organization does not qualify for exemption from Federal income tax as an organization described in IRC Section 501(c)(3) or 501(c)(13), nor are contributions to it deductible to donors.

Rev. Rul. 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 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 of a charitable in nature. 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 must destroy the exemption under IRC Section 501(c)(3).

Application of law

IRC Section 501(c)(3) and Treas. Reg. Section 1.501(c)(3)-1(a)(1) set forth two main tests for an organization to be recognized as exempt. An organization must be both organized and operated exclusively for purposes described in Section 501(c)(3). We conclude that you fail the operational test for two reasons:

• You are not operating exclusively for exempt purposes as required by Treas. Reg. Section 1.501(c)(3)-1(c)(1).

• You are serving substantial private interests in contravention to Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii).

You did not attest that you are formed for religious purposes. Therefore, you are not like the qualifying organizations described in Rev. Rul. 79-359 and Passaic United Hebrew Burial Association. You did attest you are formed for charitable purposes. Your activities do not further charitable purposes. Like the organization in Linwood, you are serving substantial nonexempt purposes and therefore do not meet Treas. Reg. Section 1.501(c)(3)-1(c)(1).

Your cemetery operations serve private interests that are more than insubstantial in nature. Your operations are similar to those in Linwood Cemetery Association. Therefore, you fail to qualify for exemption under IRC Section 501(c)(3) because you are not operating exclusively for exempt purposes as required by Treas. Reg. Section 1.501(c)(3)-1(c)(1).

You fail to meet Treas. Reg. Section 1.501(c)(3)-1(d)(1)(ii). Although you state you are not operating a family cemetery, you have not shown that your activities serve public interests rather than private interests. You are similar to the organization described in Rev. Rul. 65-6.

Conclusion

Based on the information submitted, you have failed to show that you are operated exclusively for exempt purposes within the meaning of IRC Section 501(c)(3). Therefore, based on the administrative record, we hold that you do not qualify for exemption under 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 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:

Internal Revenue Service

EO Determinations Quality Assurance

Mail Stop 6403

PO Box 2508

Cincinnati, OH 45201

Street address for delivery service:

Internal Revenue Service

EO Determinations Quality Assurance

550 Main Street, Mail Stop 6403

Cincinnati, OH 45202

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