The International Cemetery, Cremation and Funeral Association (ICCFA) made an old but persuasive argument to get the IRS to exempt cemetery care trusts from the Medicare tax that will fund ObamaCare. As discussed in a prior post, the IRS had initially proposed to apply the tax to both cemetery care trusts and preneed trusts. With the publication of the final rule, the IRS acknowledged similarities of the cemetery care trust and the preneed trust in that each is a collection of many small individual trusts created for consumer protection and held for the benefit of the individual purchasers. The summary went on to reference input provided by commentators regarding IRC Section 642(i), and an assertion that the cemetery company is the only “beneficiary” of the trust for tax purposes. In contrast to preneed trusts, the IRS agreed that cemetery care trusts should be excluded because their benefit (income) goes to the cemetery company. This could seem a radical conclusion to some state regulators, and so we pursued the rationale that the IRS found so persuasive.
Citing the legislative history of IRC Section 642(i), the ICCFA explained how there are a multitude of interests served by cemetery care trusts: the private interests of lot owners, the business interests of cemetery companies, and the public interests of states and local communities in ensuring that cemeteries do not become government responsibilities. Our recent experiences are that regulators equate the public interests in a care trust as being those of lot owners, and assume a very conservative interpretation of cemetery laws that impact investment policies, the definition of income and principal, and the amendment or termination of care fund trusts. But, the IRS was persuaded by the ICCFA’s argument that the public interests are more in line with the business interests of the care trust. While the ICCFA did not offer citations for their interpretation of “public interests”, a Kansas 1965 court decision cited “public interests” when interpreting the intent of that state’s care fund requirements with regard to deposit requirements and the distribution of income:
The statute, originally enacted in 1901 (Laws 1901, ch. 102, § 5), expressed the public concern in maintaining in a seemly manner places set apart as burial grounds and in preventing the maintenance of privately developed public cemeteries from becoming public charges. Being of a remedial nature it is to be liberally construed to effectuate the purpose for which it was enacted (Van Doren v. Etchen, 112 Kan. 380, 383, 211 Pac. 144).
If state regulators were to factor the ICCFA’s public interests position into their interpretations of cemetery care laws, the industry could witness a shift in attitudes concerning care fund deposits and care trust administration. While trustees would receive more latitude in making investments and distributing “income”, cemetery operators would be expected to more accountable for care fund deposit requirements.