Appeal from judgment of the United States District Court for the Northern District of New York, Edmund Port, Judge, denying estate tax deduction for bequest to nonprofit cemetery association as not organized exclusively for charitable or religious purposes, 26 U.S.C. § 2055.
Lumbard, Anderson and Oakes, Circuit Judges. Anderson, Circuit Judge.
This appeal presents the question whether a general bequest to a non-profit cemetery association is deductible for estate tax purposes as a bequest to an entity organized exclusively for charitable or religious purposes. The National Bank of Northern New York, as executor of the estate of Elizabeth M. Haas,*fn1 and the Watertown Cemetery Association, a principal beneficiary of that estate, appeal from a judgment of the United States District Court for Northern District of New York, Edmund Port, Judge, denying a petition for refund of estate taxes paid under protest, and dismissing the complaint of Watertown Cemetery Association for lack of jurisdiction.
Elizabeth M. Haas, who died on January 15, 1966, bequeathed a large portion of her ample estate to two nonprofit cemetery associations located in northern New York State. She left $25,000 to the Grove Cemetery Association in LaFargeville, New York, partly for the perpetual care of the Frederick Wetterham family burial plot.*fn2 To the Watertown Cemetery Association of Watertown, New York, she bequeathed a 50 per cent portion of her residuary estate, a share which approximates $2,500,000. The executor claims that the two cemetery associations are "charitable" or "religious" entities within the meaning of 26 U.S.C. § 2055(a)(2)*fn3 and that under that provision the estate is entitled to an estate tax deduction for the two bequests.*fn4 The Commissioner rejected the claim. The estate thereupon paid under protest the sum of $935,096.66 in federal estate taxes and interest on the cemetery bequests. This action was brought for refund of $916,085.78 of that amount; the remainder has been voluntarily refunded by the Commissioner. The district court rejected the refund claim, ruling that the cemeteries are not "corporation[s] organized and operated exclusively for religious [or] charitable . . . purposes . . . ." 26 U.S.C. § 2055(a). We affirm.*fn5
The executor does not argue that bequests to cemeteries will always qualify for estate tax deduction under § 2055. Such a position would be most difficult to maintain in view of the legislative history of the estate tax and income tax provisions relating to charitable and religious entities. The 1939 Internal Revenue Code did not expressly provide for either income or estate tax deductions for donations to cemetery associations. In 1954, however, the Code was amended to provide an express exemption from the income tax for "cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit . . . ." 26 U.S.C. § 501(c)(13). But it is significant that this was done as a special exemption, wholly outside the rubric of "charitable" or "religious" status under § 501(c)(3).
At the very same time, 26 U.S.C. § 170(c)(5) was added to make clear that donations to such cemetery associations were specially defined as deductible for the purpose of computing the donee's income tax. This subsection was entirely distinct from the general deduction provision for donations to corporations, trusts and funds "organized and operated exclusively for religious, charitable . . . purposes," contained in 26 U.S.C. § 170(c)(2)(B). As the Senate Report on the 1954 Code stated, this new provision "extend[ed] the deduction for charitable contributions beyond those allowed under present law to contributions made to nonprofit cemetery and burial companies." S. Rep. on Int. Rev. Code of 1954, 83d Cong., 2d Sess. (1954); 1954 U.S. Code Cong. & Ad. News P4621, 4660.
No similar estate tax provision expanding deductibility for bequests to cemeteries either specially or as "charitable" or "religious" contributions has been made by Congress. The estate tax provision regarding such bequests in the 1939 and 1954 Codes is identical in content to the old income tax charitable contribution provision, see 26 U.S.C. § 170(c)(2), which the 1954 Congress felt did not extend to include gifts or bequests to cemetery associations. Under the congressional understanding and the prior case law, see, e.g., Schuster v. Nichols, 20 F.2d 179, 181 (D. Mass. 1927), it appears that a per se rule allowing deduction for bequests to cemetery associations would be "beyond [that] allowed under present law . . . ." S. Rep. on Int. Rev. Code of 1954, supra.
In this situation, the executor is constrained to argue that the two cemetery association beneficiaries involved in this case serve in the traditional sense as charitable or religious enterprises. As was stated in Gund's Estate v. Commissioner, 113 F.2d 61, 62 (6th Cir. 1940) (bequest to association not deductible where no free burial space provided or less than fair value charged for burial or upkeep), cert. denied, 311 U.S. 696, 85 L. Ed. 451, 61 S. Ct. 134 (1941), "[a] cemetery association doubtless could be so organized and operated as to be a charitable organization within the meaning of the [Internal Revenue Code] . . . ."
The factors relied upon by the executor in the present case, however fall short of such a result. The primary features of an allegedly charitable nature claimed for the Watertown Cemetery Association are that down through the years it has: (a) conveyed a section of lots to the Volunteer Firemen of Watertown at reduced price, which it has maintained free of charge; (b) in 1871 rehabilitated and has since maintained free of charge the adjacent Old Burrville Burying Ground; (c) in the 19th century contributed over $9,000 to the construction of an access road from the city limits of Watertown to the cemetery; (d) in 1885 dedicated a plot of 1,100 square feet to the Henry Keep Home, a nonprofit home for aged persons, for burial purposes; (e) in 1872 dedicated a plot of land without charge for the erection of a chapel; (f) has provided temporary winter storage of bodies destined for other cemeteries free of charge; and (g) has maintained a number of burial plots as to which no perpetual care payment was ever made and for which annual assessments are not being paid.*fn6 As the district court found, however, "the Cemetery Associations did not make it a practice of providing free burial to indigents, nor is it their usual custom to provide any plots at reduced prices." Here, as in Bank of Carthage v. United States, 304 F. Supp. 77, 80 (W.D. Mo. 1969), "it appears the rich, the poor, and the in between are treated alike." While some of the various functions claimed to be charitable by the cemetery may in fact be so, here as in Bank of Carthage "the conclusion is inescapable that the [cemetery's] funds are not used exclusively for charitable purposes," as the statute requires. Id. (emphasis original). See also Gund's Estate v. Commissioner, supra, 113 F.2d at 62; note 3 supra.
We cannot accept the broad view of Dulles v. Johnson, 273 F.2d 362 (2d Cir. 1959), cert. denied, 364 U.S. 834, 5 L. Ed. 2d 60, 81 S. Ct. 54 (1960), espoused by the executor, that if the activity of burying the dead were not undertaken by these and like associations, the cost would devolve upon the public, thereby rendering the associations "charitable" in purpose. In Dulles this court upheld the deductibility of bequests made from the estate of William Nelson Cromwell to various New York bar associations. That opinion surveyed most of the various activities of the associations, including their efforts at regulating improper and unauthorized practice of law, and concluded that "the total operations of the three [associations] . . . are 'charitable, scientific . . . [and] educational' within the meaning of [what is now 26 U.S.C. § 2055] . . . ." 273 F.2d at 368. Among the factors there present which inclined the court to its conclusion of charitable status, despite incidental economic benefit to members of the legal fraternity, was that if the regulatory "activities were not undertaken by the Associations, the cost of this necessary regulation would descend upon the public." Id. at 366. The executor, however, mistakes this single factual element for the entire rationale of the case. The executor contends that since the cemeteries involved herein relieve the public fisc by the perpetual maintenance of the cemetery grounds -- a task assumed in cases of neglect by the local governments, see N.Y. County Law § 222-5-a (McKinney 1972); N.Y. Town Law § 291-1 (McKinney Supp. 1975) -- the cemeteries are "charitable" within the terms of Dulles. In Dulles, however, it is clear that substantial "charitable" and "educational" activities of a more traditional sort were continuously being performed by the beneficiary associations: "maintaining libraries for legal research, sponsoring lectures and forums on the law, providing free legal service through participation in legal aid, and providing low cost legal service through participation in a legal referral system." 273 F.2d at 367-68. In our view, Dulles should be read for the proposition that public dedication of services by an organization may be colored by a history of that organization's performance of more traditional charitable activities to such an extent that the entire enterprise, or the "total operations" of the association, id. at 368, assume the aspect of charitable service to the community.*fn7 The activities which are not charitable or educational, e.g., social or economic, must be merely "auxiliary" or "incidental in nature." Id. By concentrating solely on the factor of relieving public expense, we believe the executor has overlooked the complex of factors upon which the Dulles opinion was based. Relief of general tax burdens alone, in a society with some progressivity in its tax structure, cannot be deemed a single, inalienable mark of charity.
Our view is that relief for the public fisc is more symptomatic than evidentiary regarding whether an activity is charitable: charity often results in an absorption of a burden otherwise falling upon the state, particularly where the social welfare is a principal purpose of the state. But this does not mean that activities lessening public expense in any of a myriad of areas of public interest are perforce charitable.
The activities of the associations in this case are not, as in Dulles, historically infused with such charitable functions as the provision of needed services for free, or at low cost, for those who cannot otherwise afford them. See also Eastern Kentucky Welfare Rights Organization v. Simon, 165 U.S. App. D.C. 239, 506 F.2d 1278, 1288-89 (D.C. Cir. 1974) (Revenue Ruling 69-545 allowing nonprofit hospitals to qualify as "charitable" for income tax purposes upheld), vacated and remanded on other grounds, 426 U.S. 26, 96 S. Ct. 1917, 48 L. Ed. 2d 450, 44 U.S.L.W. 4724 (1976). Nor is the noncharitable function or activity, the sale of burial plots, merely "incidental" or "auxiliary." In this context, we find that the executor has failed to sustain the qualification of the cemeteries as charitable entities under § 2055.
Judge Port was also correct in holding that the two cemetery associations do not qualify as "religious" entities under § 2055. Here, as in the case of "charitable" status, it must again be assumed that a cemetery could be so organized as to constitute a "religious" entity under the estate tax provisions, 26 U.S.C. § 2055(a). Cf. Gund's Estate v. Commissioner, supra. In fact, we have been informed on argument of this case that many cemeteries directly associated with and under the supervision of particular churches have been treated by the Commissioner as "religious" activities for purposes of § 2055, even though church or church-owned burial plots are not given free of charge except to occasional indigents. See also Estate of Elizabeth L. Audenried, 26 T.C. 120 (1956). The executor claims that Grove Cemetery and Watertown Cemetery should be similarly treated, despite their lack of religious affiliation, because burial in general serves a religious purpose. While burial may, in many or most instances, serve a religious function, note 9 infra, the fact remains that the cemetery associations in this case do not themselves perform that function. The district court found that "any prayers or religious ceremonies performed in connection with the burial are performed by clergymen or others in no way associated with the Cemetery Associations." Furthermore, neither of these associations make religious belief or religious services a requirement for burial in their cemeteries. Thus neither directly nor indirectly have these cemeteries presumed to dedicate their services to an express religious function.*fn8 This distinguishes these cemeteries from those which operate under the ownership and supervision of particular churches, and are affiliated with the religious objectives of those churches. We believe Judge Port has properly applied the distinction which Congress has set forth.*fn ...