1.501(c)(13)-1. Cemetery companies and crematoria
(a) Nonprofit mutual cemetery companies. --A nonprofit cemetery
company may be entitled to exemption if it is owned by and operated
exclusively for the benefit of its lot owners who hold such
lots for bona fide burial purposes and not for the purpose of
resale. A mutual cemetery company which also engages in charitable
activities, such as the burial of paupers, will be regarded
as operating in conformity with this standard. Further, the
fact that a mutual cemetery company limits its membership to
a particular class of individuals, such as members of a family,
will not affect its status as mutual so long as all the other
requirements of section 501(c)(13) are met.
(b) Nonprofit cemetery companies and crematoria.
--Any nonprofit corporation, chartered solely for the purpose
of the burial, or (for taxable years beginning after December
31, 1970) the cremation of bodies, and not permitted by its
charter to engage in any business not necessarily incident to
that purpose, is exempt from income tax, provided that no part
of its net earnings inures to the benefit of any private shareholder
or individual.
(c) Preferred stock
(1) In general. --Except as provided in subparagraph
(3) of this paragraph, a cemetery company or crematorium is
not described in section 501(c)(13) if it issues preferred stock
on or after November 28, 1978.
(2) Transitional rule for preferred stock issued
prior to November 28, 1978. --In the case of preferred stock
issued prior to November 28, 1978, a cemetery company or crematorium
which issued such stock shall not fail to be exempt from income
tax solely because it issued preferred stock which entitled
the holders to dividends at a fixed rate, not exceeding the
legal rate of interest in the State of incorporation or 8 percent
per annum, whichever is greater, on the value of the consideration
for which the stock was issued, if its articles of incorporation
require:
(i) That the preferred stock be retired at par
as rapidly as funds therefor become available from operations,
and
(ii) That all funds not required for the payment
of dividends upon or for the retirement of preferred stock be
used by the company for the care and improvement of the cemetery
property.
The term "legal rate of interest"
shall mean the rate of interest prescribed by law in the State
of incorporation which prevails in the absence of an agreement
between contracting parties fixing a rate.
(3) Transitional rule for preferred stock issued
on or after November 28, 1978. --In the case of preferred stock
issued on or after November 28, 1978, a cemetery company or
crematorium shall not fail to be exempt from income tax if its
articles of incorporation and the preferred stock meet the requirements
of subparagraph (2) and if such stock is issued pursuant to
a plan which has been reduced to writing and adopted prior to
November 28, 1978. The adoption of the plan must be shown by
the acts of the duly constituted responsible officers and appear
upon the official records of the cemetery company or crematorium.
(d) Sales to exempt cemetery companies and crematoria.
--Except as provided in paragraph (c)(2) or (c)(3) of this section
(relating to transitional rules for preferred stock), no person
may have any interest in the net earnings of a tax-exempt cemetery
company or crematorium. Thus, a cemetery company or crematorium
is not exempt from tax if property is transferred to such organization
in exchange for an interest in the net earnings of the organization
so long as such interest remains outstanding. An interest in
a cemetery company or crematorium that constitutes an equity
interest within the meaning of section 385 will be considered
an interest in the net earnings of the cemetery. However, an
interest in a cemetery company or crematorium that does not
constitute an equity interest within the meaning of section
385 may nevertheless constitute an interest in the net earnings
of the organization. Thus, for example, a bond or other evidence
of indebtedness issued by a cemetery company or crematorium
which provides for a fixed rate of interest but which, in addition,
provides for additional interest payments contingent upon the
revenues or income of the organization is considered an interest
in the net earnings of the organization. Similarly, a convertible
debt obligation issued by a cemetery company or crematorium
after July 7, 1975, is considered an interest in the net earnings
of the organization. [Reg. §1.501(c)(13)-1.]
Presented by Alvin Brown and Associates,
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IRS.
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