IRS approves multi-year facility-project set-aside

Plain-English summary

A private foundation undertaking a multi-year scientific-research facility upgrade proposed setting aside funds to secure fabrication pricing and demonstrate commitment while raising the remaining project costs. Fabrication and on-site construction would take multiple years and require more than one year’s income. The IRS approved the set-aside under section 4942(g)(2), requiring payment of the set-aside amount within 60 months after the first set-aside.

Ruling snapshot

• Question: Does the foundation’s multi-year facility and equipment project qualify for the section 4942(g)(2) set-aside suitability test?
• Outcome: approved
• 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)

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

                                           Employer Identification Number:

Number: 202011012
Release Date: 3/13/2020 Contact Person - ID Number:

Date: December 18, 2019 Contact Telephone Number:

LEGEND: UIL:
B = state 4942.03-07
C =building
D = organization
E =project
F =center
G = university
H = organization
J =business
m dollars = amount
n dollars = amount
p dollars = amount
q dollars = amount
S =year
V =date

Dear

Why you are receiving this letter
This is our response to your letter received December 31, 2018 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 were formed under the laws of B around S and are recognized as an
organization described in Internal Review Code Section 501(c)(3) and as a private
foundation within the meaning of IRC Section 509(a).
You provide education in to the citizens of B and
research. You host many local groups and provide various public
programs. In the area of scientific research, you have worked with D and other
institutions and are presently the headquarters of the E, F in partnership with G
and a member of H.
To keep current in research you have embarked on a project to upgrade your
facility with a new and specially designed to house the
at the C. The will be fabricated by J and take approximately
years to complete.
The cost will be approximately m dollars. You anticipate providing n dollars in
funding with the additional p dollars to be raised from the outside sources.
To start the funding process, you will place q dollars in a set aside ("hold back")
account by V. This will enable you to secure the price with J and show other
organizations that may provide funding that you are going forward with the project.
J estimates the fabrication of the will take approximately years from
the initial down payment. An additional year will be required for the on-site work of
constructing the building and erecting the
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)(8), 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,



                                      Steven A. Martin
                                      Director, Exempt Organizations
                                      Rulings and Agreements

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