Rev. Rul. 67-170

Advice has been requested whether a bequest or devise to trustees of a cemetery qualifies for the Federal estate tax deduction under section 2055(a) of the Internal Revenue Code of 1954. The cemetery is separately owned by a nonprofit corporation organized for the purpose of operating the cemetery and it has been determined that such corporation is exempt, for Federal income tax purposes, under section 501(c)(13) of the Code.

The decedent devised and bequeathed an interest in his estate in trust to the board of trustees of a cemetery for the perpetual care of the cemetery. The cemetery was not owned by any religious organization but has at all times permitted members of any race to purchase graves and to be buried therein, and persons without funds were likewise permitted to be buried there. It was suggested that the mere fact that grave lots are sold to persons who are able to pay, should not, in and of itself, jeopardize the charitable status of the cemetery since the funds received from such sales are used for operational expenses and do not inure to the benefit of any stockholder.

The issue, however, is whether funds bequeathed to trustees of a cemetery for its perpetual care are considered to be for exclusively charitable purposes within the meaning of section 2055(a)(3) of the Coee where the facts show or the articles and charter provide that the cemetery corporation was formed primarily for the purpose of maintaining a cemetery for purchasers of burial lots therein.

Section 2055(a)(3) of the Code authorizes the allowance of a deduction from the value of the gross estate for all bequests, legacies, devises, or transfers to a trustee or trustees, but only if such contributions or gifts are to be used by such trustee or trustees exclusively for religious, charitable, scientific, literary or educational purposes, and no substantial part of the activities of such trustee or trustees is carrying on propaganda or otherwise attempting to influence legislation.

In the interpretation and application of the Internal Revenue Code relating to charitable deductions for Federal tax purposes, the courts have held that a cemetery engaged in the business of selling lots for burial purposes is not considered to be one that is operated exclusively for charitable purposes. The fact that a person who can pay the price is not excluded from becoming a purchaser of a lot, or that one unable to pay is not forbidden free burial in the cemetery, does not necessarily constitute it as an organization or association operating exclusively for charitable purposes. Cf. Wilber National Bank, Executor v. Commissioner , 17 B.T.A. 654 (1929); Estate of Arthur D. Haley v. Commissioner , Tax Court Memorandum Opinion, entered September 30, 1948, where the court commented that it is the use to which a bequest is to be applied that determines deductibility and not the motive prompting the bequest nor the nature of the business in which the trustee is engaged.

Accordingly, it is held that a bequest to a board of trustees, to be expended for the perpetual care of a nonprofit cemetery, owned by a corporation other than a religious organization, is not for exclusively religious or charitable purposes within the meaning of section 2055(a)(3) or section 2522(a) of the Code.