Till Death Do Us Part? Family Cemeteries and Section 501(c)(13)

The New York Times has a fascinating story this morning about family cemeteries, focusing on the descendants of Standard Oil Trust co-founder Charles Pratt. According to the Times:

Some cemeteries have also become the connective tissue for families of far more modest means. Part of this results from rules of the Internal Revenue Service, which grants nonprofit status to these cemeteries under section 501(c)(13) of the Internal Revenue Code. The rules require families to maintain a detailed list of all descendants eligible to be buried there. Despite having a 19th-century business link, Rockefellers cannot not be buried in the Dosoris Cemetery unless they have married a Pratt.

Seems crazy for the IRS to prohibit Rockefellers from being buried with the Pratts, right? Well, yes, that would be crazy. Fortunately, it’s not the case.

Section 501(c)(13) of the Code allows a tax exemption for “[c]emetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit.” The IRS formerly took the position that family cemeteries do not qualify for tax exemption under section 501(c)(13). In a 1965 revenue ruling, the IRS held that:

[F]or Federal income tax purposes there is no distinction between a private family plot in a public cemetery, and a private cemetery where burials are limited to the descendants of a single family. In either case, the funds used for upkeep of the cemetery serve the private interests of the individuals eligible to be buried there rather than promote the support of the cemetery.

Speaking of the Pratts and the Rockefellers, the family of Charles Pratt’s business partner, John D. Rockefeller, challenged the IRS’s position with respect to family cemeteries. And in 1974, the Tax Court sided with the Rockefellers. Since then, family cemeteries — like other cemeteries operated for their members — have been eligible for exemption under section 501(c)(13). The IRS regulations implementing section 501(c)(13) now say:

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 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.

So the Pratt family cemetery won’t lose its tax exempt status if it excludes the Rockefellers (or any other non-Pratts) from being buried there. But the family cemetery need not limit membership to Pratts in order to maintain its tax exemption. The cemetery could presumably extend membership to descendants of any Standard Oil Trust founder, or any alum of the Pratt Institute, or any resident of Glen Cove. Under the IRS regulations, the fact that a cemetery limits membership to members of a family will not necessarily prevent it from qualifying for a tax exemption, but nor is it necessary for a tax exemption.

Where, then, do these “rules requir[ing] families to maintain a detailed list of all descendants” come from? Not from any regulation promulgated by the Treasury Department/IRS. Not from the Internal Revenue Manual, which addresses family cemeteries but says little more than that they are now eligible for exemption. Not from any other IRS guidance document or court case (or, at least, not from any I can find). Perhaps the Pratts enjoy the genealogical exercise of tracking all the descendants of paterfamilias Charles, and perhaps the Pratts want to exclude the Rockefellers from their family cemetery anyway. But if they think that it’s section 501(c)(13) that requires them to do this, well, it’s difficult to see how they have arrived at that conclusion.