Foundation may set aside funds for a future academic symposium

Plain-English summary

A private foundation planned a second academic symposium for promising young scholars from around the world. It proposed reserving equal amounts in two different years and spending all of the funds on the symposium within 60 months after the first set-aside. The IRS approved the program under section 4942(g)(2), treating the symposium as a specific long-term project that could be better accomplished through set-asides than immediate payment. The foundation had to record the approved amounts as pledges or obligations and account for them under the minimum-investment-return and adjusted-net-income rules.

Ruling snapshot

• Question: Could the foundation treat funds reserved in two years for a later academic symposium as qualifying set-asides?
• Outcome: approved
• Key authorities: IRC §§ 170(c)(2)(B), 4942(e), 4942(f), and 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: 201727009
Release Date: 7/7/2017                           Contact Person - ID Number:

                                                 Contact Telephone Number:
Date: April 11, 2017

LEGEND                                           UIL
                                                 4942.03-07

B = Program
C = Year
D = Year
E = Year
f dollars = Amount

Dear                 :

Why you are receiving this letter

This is our response to your December 29, 2016 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

Among various endeavors, you initiated the first B Symposium a few years ago,
bringing together a group of promising young scholars from around the world to
share their academic interests through presenting research papers from different
sub-disciplines using an innovative methodology of preparing and distributing their
research papers several months before the Symposium and doing summaries of
papers other than their own. The result was a resounding success with eagerness
from various corners to see a continuation of this kind of symposium.

You are planning a second B Symposium in year C. You plan to bring together a
group of promising young scholars who are eager to explore and share new ideas,
new methodologies, new perspectives and new disciplines through creative
interactions, thereby broadening their minds and widening their horizons.

To help save sufficient funds for the year C Symposium, you will set aside funds.
You plan to set aside f dollars in the year D as an initial establishment for the year
C Symposium and another f dollars in the year E.

All funds set aside will be paid in year C; therefore, all amounts set aside for this
project will be paid not more than 60 months after the date of the first set-aside in
year D.

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.

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

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosure