Foundation's arts-center set-aside approved

Plain-English summary

A private foundation requested approval to set aside funds for the startup of an inclusive arts, vocational-training, and community-engagement center. The project included research and legal planning, leasing and building work, program design, marketing, staffing, equipment, and a grand opening. The foundation explained that accumulating and spending the funds in phases would support a measured launch, testing, financial sustainability, and growth based on demand. The IRS found that the long-term project could be better accomplished through a set-aside than by immediate payment and approved the request under IRC § 4942(g)(2). The foundation must record the set-aside as a pledge or obligation and pay it within 60 months after the first set-aside.

Ruling snapshot

• Question: May the private foundation treat funds reserved for a phased arts-center launch as a qualifying set-aside?
• Outcome: Approved, subject to payment within 60 months
• Key authorities: IRC § 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 06/30/2025
IRS Tax Exempt and Government Entities Employer ID number:
Person to contact:

Name:
ID number:
Telephone:
Release Number: 202539015
Release Date: 9/26/2025
LEGEND UIL: 4942.03-07

b dollars = Dollar
c dollars = Dollar
d dollars = Dollar
e dollars = Dollar
f dollars = Dollar
H = Date
J = Date
K = Date
L = Date

Dear

Why you are receiving this letter
We received your 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 b dollars for the tax year ending on H.

The purpose of the set-aside is to allow you to create an inclusive, welcoming space for artistic expression,
vocational training and community engagement, where individuals of all ages and background can explore their
creativity, connect through transformative power of art and gain valuable career skills. The set-aside will be used
for all start-up expenses to allow you to form and begin operations of your programs.

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

Planned additions to the set-aside include:

• The pre-launch phase ending in H is expected to need c dollars to allow for research and planning, legal
  and organizational set up, fundraising, and space lease agreement.

• The set-up phase ending in J is expected to need d dollars to allow for space construction/repairs,
  finalizing of program offerings, creation of a schedule of events, and purchase of necessary equipment and
  supplies.

• The Marketing and outreach phase ending on K is expected to need e dollars to allow for development of
  branding designs and distribution of marketing materials, building an email list for newsletters and
  updates, and beginning local outreach.

• The Opening phase ending on L is expected to need f dollars to allow for hiring staff, purchasing

equipment and supplies, holding the grand opening, and inviting local media, artists, and community
members.

The set-aside will allow you to focus on a smaller, more measured approach, build stronger community ties, test
programming, ensure financial sustainability, and gradually scale up operations in response to actual demand.

You expect to pay the amount set-aside within 60 months after the set-aside, as required by Section 53.4942
(a)-3(b)(1) of the Regulations and Section 4942(g)(2)(B) of the Code.

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,

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

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

Enclosures:
Redacted Letter 4797
Letter 437

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