[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.642(i)-1]

[Page 51-53]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.642(i)-1  Certain distributions by cemetery perpetual care funds.

    (a) In general. Section 642 (i) provides that amounts distributed 
during taxable years ending after December 31, 1963, by a cemetery 
perpetual care fund trust for the care and maintenance of gravesites 
shall be treated as distributions solely for purposes of sections 651

[[Page 52]]

and 661. The deduction for such a distribution is allowable only if the 
fund is taxable as a trust. In addition, the fund must have been created 
pursuant to local law by a taxable cemetery corporation (as defined in 
Sec. 1.642 (i)-2 (a)) expressly for the care and maintenance of 
cemetery property. A care fund will be treated as having been created by 
a taxable cemetery corporation (``cemetery'') if the distributee 
cemetery is taxable, even though the care fund was created by the 
distributee cemetery in a year that it was tax-exempt or by a 
predecessor of such distributee cemetery which was tax-exempt in the 
year the fund was established. The deduction is the amount of the 
distributions during the fund's taxable year to the cemetery corporation 
for such care and maintenance that would be otherwise allowable under 
section 651 or 661, but in no event is to exceed the limitations 
described in paragraphs (b) and (c) of this section. The provisions of 
this paragraph shall not have the effect of extending the period of 
limitations under section 6511.
    (b) Limitation on amount of deduction. The deduction in any taxable 
year may not exceed the product of $5 multiplied by the aggregate number 
of gravesites sold by the cemetery corporation before the beginning of 
the taxable year of the trust. In general, the aggregate number of 
gravesites sold shall be the aggregate number of interment rights sold 
by the cemetery corporation (including gravesites sold by the cemetery 
before a care fund trust law was enacted). In addition, the number of 
gravesites sold shall include gravesites used to make welfare burials. 
Welfare burials and pre-trust fund law gravesites shall be included only 
to the extent that the cemetery cares for and maintain such gravesites. 
For purposes of this section, a gravesite is sold as of the date on 
which the purchaser acquires interment rights enforceable under local 
law. The aggregate number of gravesites includes only those gravesites 
with respect to which the fund or taxable cemetery corporation has an 
obligation for care and maintenance.
    (c) Requirements for deductibility of distributions for care and 
maintenance--(1) Obligation for care and maintenance. A deduction is 
allowed only for distributions for the care and maintenance of 
gravesites with respect to which the fund or taxable cemetery 
corporation has an obligation for care and maintenance. Such obligation 
may be established by the trust instrument, by local law, or by the 
cemetery's practice of caring for and maintaining gravesites, such as 
welfare burial plots or gravesites sold before the enactment of a care 
fund trust law.
    (2) Distribution actually used for care and maintenance. The amount 
of a deduction otherwise allowable for care fund distributions in any 
taxable year shall not exceed the portion of such distributions expended 
by the distributee cemetery corporation for the care and maintenance of 
gravesites before the end of the fund's taxable year following the 
taxable year in which it makes the distributions. A 6-month extension of 
time for filing the trust's return may be obtained upon request under 
section 6081. The failure of a cemetery to expend the care fund's 
distributions within a reasonable time before the due date for filing 
the return will be considered reasonable grounds for granting a 6-month 
extension of time for section 6081. For purposes of this paragraph, any 
amount expended by the care fund directly for the care and maintenance 
of gravesites shall be treated as an additional care fund distribution 
which is expended on the day of distribution by the cemetery 
corporation. The fund shall be allowed a deduction for such direct 
expenditure in the fund's taxable year during which the expenditure is 
made.
    (3) Example. The application of paragraph (c)(2) of this section is 
illustrated by the following example:

    A, a calendar-year perpetual care fund trust, meeting the 
requirements of section 642 (i), makes a $10,000 distribution on 
December 1, 1978 to X, a taxable cemetery corporation operating on a May 
31 fiscal year. From this $10,000 distribution, the cemetery makes the 
following expenditures for the care and maintenance of gravesites: 
$2,000 on December 20, 1978; $4,000 on June 1, 1979; $2,000 on October 
1, 1979; and $1,000 on April 1, 1980. In addition, as authorized by the 
trust instrument, A itself makes a direct $1,000 payment to a contractor 
on September 1, 1979 for qualifying care and maintenance

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work performed. As a result of these transactions, A will be allowed an 
$8,000 deduction for its 1978 taxable year attributable to the 
cemetery's expenditures, and a $1,000 deduction for its 1979 taxable 
year attributable to the fund's direct payment. A will not be allowed a 
deduction for its 1978 taxable year for the cemetery's expenditure of 
either the $1,000 expended on April 1, 1980 or the remaining unspent 
portion of the original $10,000 distribution. The trustee may request a 
6-month extension in order to allow the fund until October 15, 1979 to 
file its return for 1978.

    (d) Certified statement made by cemetery officials to fund trustees. 
A trustee of a cemetery perpetual care fund shall not be held personally 
liable for civil or criminal penalties resulting from false statements 
on the trust's tax return to the extent that such false statements 
resulted from the trustee's reliance on a certified statement made by 
the cemetery specifying the number of interments sold by the cemetery or 
the amount of the cemetery's expenditures for care and maintenance. The 
statement must indicate the basis upon which the cemetery determined 
what portion of its expenditures were made for the care and maintenance 
of gravesites. The statement must be certified by an officer or employee 
of the cemetery who has the responsibility to make or account for 
expenditures for care and maintenance. A copy of this statement shall be 
retained by the trustee along with the trust's return and shall be made 
available for inspection upon request by the Secretary. This paragraph 
does not relieve the care fund trust of its liability to pay the proper 
amount of tax due and to maintain adequate records to substantiate each 
of its deductions, including the deduction provided in section 642(i) 
and this section.

[T.D. 7651, 44 FR 61596, Oct. 26, 1979]