Historic preservation matching grant qualified for set-aside treatment

Plain-English summary

A private foundation planned a matching grant to an organization restoring a historic property in a National Historic Landmark neighborhood. The grant would fund about one-third of the project's estimated cost, while the recipient raised the balance during an approximately three-year capital campaign. The foundation explained that a set-aside would help preserve control over the long-term project and stimulate matching support from the community. The IRS approved the set-aside under IRC § 4942(g)(2), treating it as suited to a project better accomplished over time than by immediate payment. The foundation must document the obligation and pay the set-aside within 60 months after the first set-aside date.

Ruling snapshot

• Question: Could the foundation treat its matching grant for a multiyear historic rehabilitation project as an approved 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:
04/08/2025

Employer ID number:

Person to contact:
Name:
ID number:
Telephone:
Fax:

Release Number: 202527019
Release Date: 7/3/2025

LEGEND UIL: 4942.03-07
B = Organization
C = Place
D = Location
E = Place
F = Date
G = Date

m dollars = dollar amount
q dollars = dollar amount

Dear :

Why you are receiving this letter
We received your Date 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 were formed to assist with the preservation and the development of historic sites.

The nature of the set side is to grant m dollars to B, which owns and maintains C, a historic property, located in
D. C is among the homes in the neighborhood that contribute to the E, which is a National Historic Landmark,
B is working on a historic rehabilitation project to restore the exterior (windows, doors, masonry, and porch),
interior (structural repairs, plaster, paint, and addition of an accessible bathroom), and mechanical systems
(electrical, HVAC, plumbing, and alarm system) in C consistent with the historic preservation standards.

You are matching m dollars to B to fund approximately one-third of the estimated total cost of q dollars. B must

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

fund the remaining estimated costs from other sources. B will use m dollars solely to pay for 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, staff salaries, and other “soft costs” not
directly incurred to procure labor, materials, or services for the restoration. This agreement is made effective as
of F.

The purpose of your grant requires the use of a matching-grant program and the preservation of control over the
long-term project, both of which can be better accomplished by use of a set-aside. You believe that the
matching grant program is necessary to stimulate grants from the community at large, due to the extent and cost
of the rehabilitation and restoration needed for C. 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.

The agreement provides that the grant be paid by no later than G. Therefore, you attest that you expect to pay
the amount set aside within 60 months after the set-aside date of F.

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

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 4797
Letter 437

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