Educational facility renovation set-aside approved

Plain-English summary

A private foundation requested a set-aside to renovate a facility used for science, agriculture, arts, and music education for children and adults. The work included heating, ventilation, air conditioning, electrical, and plumbing upgrades. The foundation explained that permits and regulatory approvals took additional time and that supply-chain issues and labor shortages continued to delay the project. The IRS approved the set-aside under IRC § 4942(g)(2), with the amount required to be distributed within 60 months after the first set-aside. If the project is blocked or costs less than expected, the foundation represented that it will use the full amount for other educational facility renovations, repairs, structures, or equipment.

Ruling snapshot

• Question: May the foundation treat funds reserved for an educational facility renovation as a qualifying set-aside?
• Outcome: Approved, subject to distribution 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 02/06/2025

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: 202518020 Fax:

Release Date: 5/2/2025

LEGEND UIL: 4942.03-07
B = Date of request
C = Project

x dollars = Set-aside amount

Dear Applicant:

Why you are receiving this letter
We received your December 6, 2023 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 have requested a set-aside of x dollars for the tax year ending on B.

The purpose of the set-aside is to fund your current renovation project known as the C which is used in
providing education programs to school children and adults. The renovation of the facility, which includes
upgrades to the existing building (HVAC, electrical, and plumbing) will allow you to continue to grow and
provide quality education programs in sciences, agriculture, arts, and music.

You are requesting the set-aside because construction permits and regulatory approvals took additional time to
get local approval. Supply chain issues and labor shortages continue to be a concern and are causing delays in
project timelines. The set-aside will allow you to properly manage this project and bring it to a quality
conclusion.

You will distribute the total set-aside amount within 60 months after the date of the first set-aside. If the project

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

or any aspect of the project is blocked for any reason or the costs end up lower than the estimates, you will
distribute the total set-aside amount on other education facility renovations, repairs, new structures, or
equipment.

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.

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

Sincerely,

Stephen A. Martin
Director, Exempt Organizations

Rulings and Agreements
Letter 437

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