Youth-facility renovation set-aside approved

Plain-English summary

A charitable trust serving orphaned and other destitute children requested a
2022 set-aside to renovate or construct a facility for sports, arts, creative
media, music, dance, emerging technology, and other youth-development programs.
The trust explained that reserving the funds would ensure they remained
available as construction costs were incurred over time and certified that the
amount would be paid within 60 months. The IRS approved the set-aside under
Section 4942(g)(2), applying the suitability test for a specific long-term
project that could be better accomplished by a set-aside than by immediate
payment.

Ruling snapshot

• Question: May the foundation reserve funds for the youth-facility renovation or construction project?
• Outcome: Approved, with payment required within 60 months
• Key authorities: IRC §§ 170(c)(2)(B) and 4942(g)(2); Treas. Reg. § 53.4942(a)-3(b); Rev. Rul. 74-450

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 11/29/2023
Tax Exempt and Government Entities Employer ID number:
IRS P.O. Box 2508
Cincinnati, OH 45201 Person to contact:
Name:
Release Number: 202408011 ID number:
Release Date: 2/23/2024 Telephone:
Fax:

LEGEND UIL: 4942.03-07

B = Location

C = Building

D = Address

x dollars = Dollar amount

Dear:

Why you are receiving this letter
We received your December 22, 2022 request for approval of a set-aside under Internal Revenue Code (IRC)
Section 4942(g)(2). Based on the information furnished, your request is approved.

You are recognized as tax-exempt under IRC Section 501(c)(3) and as a private foundation under IRC
Section 509(a).

What you need to do
Document your approved set-aside(s) in your records as pledges or obligations. You must pay the set-aside
amounts within 60 months after the date of the first set-aside, as required under IRC Section 4942(g)(2).

Take into account the amounts set aside when determining your minimum investment return under IRC Section
4942(e)(1)(A) and the income attributable to your set-asides when computing your adjusted net income under
IRC Section 4942(f).

Description of set-aside request

You are a charitable trust created for the purpose of serving orphan and other destitute children in the B, with
preference given to children of pure or part aboriginal blood. You are recognized as exempt under IRC Section
501(c)(3) and classified as an exempt operating foundation under IRC Section 4940(d).

The amount of the set-aside under IRC Section 4942(g)(2) being requested for 2022 is x dollars. The set-aside is
for the renovation/construction of your C located at D which will be used in furtherance of your exempt
activities. Specifically, the facility will be used to house multidisciplinary pathway programs such as sports,
arts, creative media, music, dance, emerging technology, and other youth development programs.

You do not have any immediate plans to add an additional set-aside amount for this project after the year
[redacted]. However, should unforeseen delays arise due to permitting and other issues beyond your control, you may
request future set-asides.

Letter 4797 (Rev. 1-2021)
Catalog Number 58293H

The use of a set-aside to designate funds for renovation/construction of this project ensures that the funding will
be available as the renovation/construction costs are incurred over time. Your statement certifies that the set-
aside will actually be paid by you no later than 60 months from [redacted].

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

IRC Section 4942(g)(2)(B) 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.

IRC Section 4942(g)(2)(B)(i) 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.

Treasury Regulation (Treas. Reg.) Section 53.4942(a)-3(b)(1) 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 Treas. Reg. Section 53.4942(a)-3(b)(2).

Treas. Reg. Section 53.4942(a)-3(b)(2) 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 IRC Section 4942(g)(2).

Additional information
This determination is directed only to 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/setasides for more information.

We'll make this determination letter available for public inspection after deleting personally identifiable information,
as required by IRC Section 6110. Enclosed are Letter 437, Notice of Intention to Disclose -Rulings, and a copy of
the 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.

Letter 4797 (Rev. 1-2021)
Catalog Number 58293H

Keep a copy of this letter for your records.

We have sent a copy of this letter to each representative authorized Form 2848, Power of Attorney and
Declaration of Representative.

If you have questions, you can call the contact the person shown above.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Redacted Letter 4797
Letter 437

Letter 4797 (Rev. 1-2021)
Catalog Number 58293H