Our 501(c)(3) church is dissolving. May we give our net remaining assets to a related cemetery even though it is exempt under section 501(c)(13) of the Tax Code and not 501(c)(3)? We feel we have a moral obligation to supplement the perpetual maintenance of the grounds. Also, will our trustees be able to claim a charitable contribution deduction if they make a personal contribution to the cemetery next year under the new provision allowing each taxpayer to deduct up to $1000 in charitable contributions if they don’t itemize deductions? —By email.
Your questions are interesting because they involve some of the tedious and difficult distinctions for cemeteries in the Tax Code. The Code allows a deduction for a “charitable contribution” pursuant to section 170(c)(5) of the Code to a nonprofit cemetery association that meets the description set out in section 501(c)(13). Separately, in section 170(b)(1)(A), the Code describes certain charitable organizations that qualify for the largest possible deduction, primarily public charities and governmental entities and not including cemetery associations. There are different rules for charitable contributions to different types of organizations.
The Tax Code requires that a dissolving charity transfer its net remaining assets for a charitable purpose and not necessarily, as many people assume, to a 501(c)(3) charitable organization. A dissolving charity could give its assets to the for-profit local utility to provide funds for heat during the winter for families who couldn’t afford to pay for it and that charitable purpose would be sufficient to meet the dissolution requirement.
Gifts to cemetery companies that meet the requirements of section 501(c)(13) are declared “charitable contributions” under Section 170(c) of the Tax Code, although not the type of contribution eligible for the maximum deduction. Gifts to (c)(13) cemeteries are permissible as gifts for charitable purposes for private foundations, but since cemetery associations are not included among the public charities described in section 170(b)(1)(A), the private foundation must exercise expenditure responsibility in order to make the grant. If a contribution to a (c)(13) cemetery is decreed “charitable” for contributions by individual taxpayers and permissible charitable activity for a private foundation willing to do some extra work, it seems clear that a contribution for the care and maintenance of the entire cemetery (and not for some private benefit such as the preservation of specific graves or the purchase of lots for current church members) would meet the dissolution requirement to transfer your net remaining assets for a charitable purpose.
Your trustees won’t be able to use a gift to the cemetery next year as a gift qualifying for the new $1000 per person annual above-the-line charitable contribution deduction, however. Those gifts qualify only if they are made to organizations listed in section 170(b)(1)(A), and not even to all of them. The gifts won’t qualify for the new deduction if they are made to private foundations, which are not described in (b)(1)(A), or to supporting organizations or donor advised funds, which are described in (b)(1)(A). Since a cemetery association is not described in (b)(1)(A), a gift to it would not qualify.
As another example of the lack of symmetry with regard to (c)(13) cemetery associations, you should be aware that for historical reasons, even though such gifts are deductible for federal income tax purposes, they do not qualify for estate or gift tax exemption.
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