IRS grants a 36-month extension to pay out a foundation's set-aside for an arts facility delayed by COVID-19

Plain-English summary

A private foundation had earlier received IRS approval for a "set-aside," a way for a foundation to earmark money for a specific long-term project and count it toward the annual payout the tax law requires, instead of spending it right away. The set-aside here funds construction of a mixed-use cultural and arts facility (galleries, classrooms, work spaces, and a theater). The project stalled when the COVID-19 pandemic put construction on hold, so the foundation asked for a 36-month extension of the deadline to actually spend the set-aside funds. Under section 4942(g)(2)(B) and the related regulation, a set-aside's payout period can be extended for good cause. The IRS found the pandemic-related delay was good cause and approved the extension. This lets the foundation keep the set-aside treatment while it finishes the building.

Ruling snapshot

• Question: Should the foundation get a 36-month extension of the period to pay out a previously approved set-aside, given pandemic-related construction delays?
• Outcome: Approved
• Key authorities: IRC § 4942(g)(2)(B)(i); Treas. Reg. § 53.4942(a)-3(b)(7)(i)(e)

Full text (IRS public release)

Department of the Treasury Date: 05/10/2023
Internal Revenue Service

Tax Exempt and Government Entities Employer ID number:
IRS P.O. Box 2508
Cincinnati, OH 45201 Person to contact:
Name:
ID number:
Telephone:

Release Number: 202331007
Release Date: 8/4/2023

LEGEND UIL: 4942.03-07

b dollars = Amount
C = Name
D = Name

Dear
We received your July 27, 2022 request for 36-month extension to pay out a set-aside approval on
Based on the information furnished, we approved your request.

Our ruling dated approved a b dollar set-aside for the year ending for the
purpose of constructing a theater building. You stated the set-aside would be expended within months.

Description of your set-aside request

The purpose of your set aside was, and is, to facilitate the development of a mixed use cultural and arts facility
to house galleries, classrooms, work spaces, and a theater rehearsal space. This will include a

and over square feet of arts-related space. This facility will be part of a redevelopment plan within the C.

The initial amount to be set aside was to cover operating expenses in constructing the facility.

Demolition of D (the building containing the theater) commenced in The intention was to go straight from
demolition to construction, with the building substantially complete in June Because of the Covid-19
global pandemic, the project was put on hold. Construction recommenced in Currently, superstructure is

being poured and the expectation is for the building to be complete by the end of . As a result, the opening
of the theater has been pushed back.

For these reasons, you are requesting an extension of time until the end of , at which time it is expected
that the set-aside amount will begin to be utilized.

Basis for our determination

Internal Revenue Code (IRC) Section 4942(g)(2)(B)(i) provides requirements for approval of a set-aside for a
specific project that will be paid out in five years. A foundation must establish that the project can be
accomplished better by using the set-aside instead of by making an immediate payment. A set-aside may have
its period to pay extended if it satisfies the requirements of IRC Section 4942(g)(2)(B)(i) and good cause is
shown.

Letter 4798 (Rev. 12-2021)
Catalog Number 58264S


Treasury Regulation Section 53.4942(a)-3(b)(7)(i)(e) states that you must provide a statement showing good
cause as to why the set-aside payment period should be extended, specifying the requested extension of time.

Additional information
This determination may only be used by the organization that requested it. IRC Section 6110(k)(3) provides that
it may not be used or cited as a precedent.

Visit www.irs.gov/set-asides for more information.

We'll make this determination letter available for public inspection after deleting certain identifying information,
as required by IRC Section 6110. Read the enclosed Letter 437, Notice of Intention to Disclose, and review the
attached letter that shows our proposed deletions. If you disagree with our proposed deletions, follow the
instructions in the Letter 437 on how to notify us. If you agree with our deletions, you don't need to take any
further action.

Keep a copy of this letter for your records.
If you have questions, you can call the contact person shown above.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Redacted Letter 4798
Letter 437

Letter 4798 (Rev. 12-2021)
Catalog Number 58294S