[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.501(c)(13)-1]

[Page 28-29]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 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 fesale. 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.
    (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

[[Page 29]]

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 rage 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 inprovement 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 stok 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 paragraph (c)(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 earning 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.

[T.D. 7698, 45 FR 33972, May 21, 1980]