## Facts

- A. Leon Davis died testate on December 6, 1976, leaving the residuary estate to Verona Cemetery in Oakmont, Pennsylvania.
- The will directed that $30,000 of the residue be used to erect a new utility building and that the remainder go into the cemetery’s endowment fund.
- Verona Cemetery Association was formed in 1881 as a nonstock, nonprofit corporation to provide burial space to any person regardless of religion or race.
- The cemetery was not owned by, or affiliated with, any religious organization or governmental unit; it operated on a nonprofit basis and provided burial services to the public.
- The executors filed a federal estate tax return claiming a charitable deduction of $370,901.74 for the amount distributed to Verona Cemetery and sought a refund of $97,557.15 plus interest.
- The IRS disallowed the deduction; the estate filed a refund suit in the Western District of Pennsylvania on stipulated facts, and both sides moved for summary judgment.
- The district court ruled for the estate, holding Verona qualified under 26 U.S.C. § 2055(a)(2); the United States appealed.

## Issues

1. Whether a bequest to a nonstock, nonprofit, nonsectarian cemetery association qualifies for the federal estate tax charitable deduction under 26 U.S.C. § 2055(a)(2).

## Decision

- The Third Circuit reversed the district court’s grant of summary judgment for the estate.
- The court held that the bequest to the nonprofit cemetery association did not qualify for the estate tax charitable deduction under § 2055(a)(2).
- The estate’s refund claim premised on the disallowed deduction was denied.

## Legal Principles

- Eligibility for the federal estate tax charitable deduction under 26 U.S.C. § 2055(a)(2) turns on statutory meaning and congressional design, not solely on common-law charitable-trust classifications.
- In construing “charitable” in § 2055(a)(2), courts may look to parallel tax-code usage, including § 501(c)(3), and to the code’s treatment of specific entity types.
- Congress’s provision of a separate income-tax exemption for cemetery companies in 26 U.S.C. § 501(c)(13), rather than treating them as § 501(c)(3) charities, supports reading “charitable” in § 2055(a)(2) to exclude nonprofit cemeteries absent explicit inclusion.
- Tax-favored status under other regimes (e.g., income-tax exemption for cemeteries, state inheritance-tax treatment) does not control federal estate-tax deductibility under § 2055(a)(2).

## Conclusion

The Third Circuit held that a bequest to a nonprofit cemetery association is not deductible as a “charitable” transfer under 26 U.S.C. § 2055(a)(2), relying on the Internal Revenue Code’s structure and history—particularly Congress’s separate categorization of cemeteries in § 501(c)(13)—rather than common-law notions of charity.


Mellon Bank, N.A. v. United States, 762 F.2d 283 (3d Cir. 1985)