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Washington Report
July 2005
Positive IRS ruling
by ICFA General Counsel Robert M. Fells, Esq.
The Internal Revenue Service recently made public a private letter ruling, PLR 200518081, which examines whether a cemetery exempt from federal taxation under section 501(c)(13) can own and operate a for-profit subsidiary company that sells "final expense" insurance products. The IRS also ruled whether dividends from the subsidiary would be taxable to the cemetery as unrelated business income.
According to the fact situation, the insurance subsidiary would have a board separate from the cemetery, though two of the five board members would be from the cemetery, and the subsidiary would maintain its own financial system, among other points.
The IRS held that the insurance subsidiary was engaged in a business purpose not attributed to the cemetery, nor did the cemetery control the day-to-day operations of the subsidiary. Therefore, the IRS found that the creation, ownership and operation of the subsidiary by the cemetery would not cause the cemetery to lose its tax-exempt status. Also, the IRS held that the subsidiary's dividends are excluded from the computation of unrelated business income tax by the cemetery.
Private letter rulings are directed only to the organizations requesting them and may not be used or cited by others as precedent. However, private letter rulings are useful as an indication of the IRS's thinking on an issue.
ICFA members who would like a copy of PLR 200518081 should contact Bob Fells at rfells@icfa.org.
Copyright ICFA 2005
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