Historic-facility rehabilitation set-aside approved

Plain-English summary

A private foundation proposed setting aside funds for a matching grant to rehabilitate a historic facility under preservation standards. The recipient would raise the remaining project cost from other sources during an approximately three-year capital campaign, and the grant would cover specified construction costs rather than publicity, fundraising, professional services, financing, or staff salaries. The foundation explained that delayed payment would stimulate community grants and preserve control over the project's terms. The IRS approved the set-aside under section 4942(g)(2), subject to recordkeeping and payment within 60 months.

Ruling snapshot

• Question: May the foundation treat funds reserved for a historic-facility matching grant as a qualifying set-aside?
• Outcome: Approved
• 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
Internal Revenue Service
Tax Exempt and Government Entities
P.O. Box 2508
Cincinnati, OH 45201

Date:
02/27/2025

Employer ID number:

Person to contact:
Name:
ID number:
Telephone:

Release Number: 202521028
Release Date: 5/23/2025

LEGEND
UIL: 4942.03-07
X = Organization
Y = Facility
Z = State
m dollars = Amount
q dollars = Amount
r dollars = Amount
N = Date
0 = Date

Dear

Why you are receiving this letter

We received your December 06, 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)(l)(A) and the income attributable to your set-asides when computing your adjusted net income under IRC Section 4942(±).

Description of set-aside request

You are a private foundation within the meaning ofIRC Section 509(a).

The nature of the set-aside is to grant m dollars to X, an organization recognized as tax-exempt under IRC Section 50l(c)(3) which owns and maintains Yin Z, a historic property.Xis working on a rehabilitation project for Y consistent with the historic preservation standards. The set-aside will provide project funding in the amount of m dollars.

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

You are matching m dollars to X to fund approximately one-third of the estimated total cost of q dollars. X must raiser dollars of the remaining estimated costs from other sources. X will use m dollars solely to pay for the reimbursable costs of the project such as labor, materials, fees and permits. The reimbursable costs shall not include costs of publicity, planning, fundraising, legal or accounting services, financing, and staff salaries. This agreement is made effective as ofN.

The set-aside is better accomplished for the purpose of the matching grant program and the preservation of control over the term of the project. You believe that the program is necessary to stimulate grants from the community at large, due to the extent and cost of the rehabilitation and restoration needed for Y. The approximate three-year period provided in the agreement to raise the necessary matching funds has been mutually agreed as allowing sufficient time to complete the anticipated capital campaign for the project.

You expect to pay the amount set-aside within 60 months after the set-aside, as required by Section 53.4942(a)- 3(b)(l) of the Regulations and Section 4942(g)(2)(B) of the Code. The agreement provides that the grant be paid by no later than 0.

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 it~ 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)(l) 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-tem1 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 po1tion 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).

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

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 infonnation.

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 43 7 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

Enclosures:
Redacted Letter 4 797
Letter 437

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