Multi-year educational website set-aside approved

Plain-English summary

A private foundation planned a multi-year educational website addressing global scientific and policy issues. It requested approval to set aside a redacted amount because immediate payment would not adequately fund the substantial project, which required resources and staff time over several years. The foundation represented that it would complete the project by the stated year and pay the set-aside amount within 60 months after the first set-aside. The IRS approved the program under section 4942(g)(2), allowing the set-aside to be treated as a qualifying distribution subject to those timing requirements. The foundation was also required to reflect the set-aside and related income in its minimum-investment-return and adjusted-net-income calculations.

Ruling snapshot

• Question: Could the private foundation use a multi-year set-aside for the educational website project?
• Outcome: Approved, provided the amount is paid within 60 months
• Key authorities: IRC §§ 170(c)(2)(B), 4942(g)(2); Treas. Reg. § 53.4942(a)-3(b); Rev. Rul. 74-450

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
P.O. Box 2508
Cincinnati, OH 45201

Employer Identification Number:
Number: 201534018
Release Date: 8/21/2015 Contact Person - ID Number:

Contact Telephone Number:

Date: May 29, 2015

LEGEND: UIL:

m = year 1 4942.03-07
x dollars = dollar amount

y = year 2

Dear

Why you are receiving this letter

This is our response to your December 30, 2014 letter requesting approval of a
set-aside under Internal Revenue Code section 4942(g)(2). You've been
recognized as tax-exempt under section 501(c)(3) of the Code and have been
determined to be a private foundation under section 509(a).

Our determination

Based on the information furnished, your set-aside program is approved under
Internal Revenue Code section 4942(g)(2). As required under section 4942(g)(2),
the set aside amount must be paid within the 60-month period after the date of the
first set-aside.

Description of set-aside request

You intend to develop an innovative and dynamic educational website relating to
critical scientific global issues, including global warming, climate control and
effects on the planet and global economics; population control, overpopulation and
future diminishment of resources and relation to extinction of species; and nuclear
disarmament and controlling proliferation of weapons of mass destruction.

To do so you are requesting a set-aside in the amount of x dollars for fiscal year y.
You provide specific information that describes the project and estimated amounts
required to complete the project. You also estimate that the project will be
completed before the end of calendar year m. You have provided a representation
that amounts set aside will actually be paid within 60 months after the date of first
set-aside.

You also provided information that shows that you need to set aside amounts to
accumulate sufficient funds to pay for the project since the immediate payment of
funds will not be adequate to meet the anticipated costs. The development of the
website is a substantial project that will require resources and staff time over the
course of many years, and is not a project you can complete within one year.

Basis for our determination

Internal Revenue Code section 4942(g)(2)(A) states that an amount set aside for a
specific project, which includes one or more purposes described in section
170(c)(2)(B), may be treated as a qualifying distribution if it meets the
requirements of section 4942(g)(2)(B).

Section 4942(g)(2)(B) of the Code states that an amount set aside for a specific
project will meet the requirements of this subparagraph if, at the time of the set-
aside, the foundation establishes that the amount will be paid within five years and
either clause (i) or (ii) are satisfied.

Section 4942(g)(2)(B)(i) of the Code is satisfied if, at the time of the set-aside, the
private foundation establishes that the project can better be accomplished using
the set-aside than by making an immediate payment.

Section 53.4942(a)-3(b)(1) of the Foundations and Similar Excise Taxes
Regulations provides that a private foundation may establish a project as better
accomplished by a set-aside than by immediate payment if the set-aside satisfies
the suitability test described in section 53.4942(a)-3(b)(2).

Section 53.4942(a)-3(b)(2) of the Foundations and Similar Excise Taxes
Regulations provides that specific projects better accomplished using a set-aside
include, but are not limited to, projects where relatively long-term expenditures
must be made requiring more than one year’s income to assure their continuity.

In Revenue Ruling 74-450, 1974-2 C.B. 388, an operating foundation converted a
portion of newly acquired land into a public park under a four-year construction
contract. The construction contract payments were to be made mainly during the
final two years. This constituted a “specific project.” The foundation's set-aside of
all its excess earnings for four years was treated as a qualifying distribution under
Internal Revenue Code section 4942(g)(2).

What you must do

Your approved set-aside(s) will be documented on your records as pledges or
obligations to be paid by the date specified. The amounts set aside will be taken
into account to determine your minimum investment return under Internal Revenue
Code section 4942(e)(1)(A), and the income attributable to your set aside(s) will
also be taken into account in computing your adjusted net income under section
4942(f) of the Code.

Additional information

This determination is directed only to the organization that requested it. Internal
Revenue Code section 6110(k)(3) provides that it may not be used or cited as a
precedent.

Please keep a copy of this letter in your records. We have sent a copy of this
letter to your representative as indicated in your power of attorney.

If you have any questions, please contact the person listed in the heading of this
letter.

Sincerely,

Director, Exempt Organizations

Enclosure
Notice 437