Approval of a private foundation's § 4942(g)(2) set-aside to fund restoration of a historic property

Plain-English summary

Private foundations must pay out a minimum amount each year for charitable purposes. Instead of paying immediately, a foundation can "set aside" money for a specific project and still have it count toward that payout requirement, but only with IRS approval and only if the money is actually paid within five years. Here a foundation asked to set aside funds as a matching grant to help restore a historic building (owned by a city and listed on the National Register of Historic Places), covering about one-third of the project cost while the city raises the rest. The foundation argued a set-aside works better than an immediate payment because the multi-year capital campaign and matching structure are meant to spur additional community donations. The IRS agreed the project meets the "suitability test" for a set-aside under § 4942(g)(2)(B)(i) and approved it. The foundation must document the set-aside, pay it within 60 months, and account for it in its minimum-investment-return and adjusted-net-income calculations.

Ruling snapshot

• Question: May the private foundation treat its set-aside for a historic-restoration matching grant as a qualifying distribution under § 4942(g)(2)?
• Outcome: Approved
• Key authorities: IRC § 4942(g)(2)(A) and (B)(i); Treas. Reg. § 53.4942(a)-3(b)(1)–(2); Rev. Rul. 74-450; IRC § 170(c)(2)(B)

Full text (IRS public release)

Department of the Treasury                    Date: 03/05/2026
Internal Revenue Service
Tax Exempt and Government Entities             Employer ID number:

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

Release Number: 202622008
Release Date: 5/29/26

LEGEND                                         UIL: 4942.03-07
B = Historic property
C = City
d dollars = Amount
e dollars = Amount
f dollars = Amount
G = 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 propose to set aside d dollars for the purpose of restoring B, a historic property. The City of C owns and
maintains B, which is listed on the National Register of Historic Places. The City of C is working on a historic
rehabilitation project to restore architectural and acoustic character, to ensure accessibility and code
compliance, and enable expanded cultural programming for generations to come and to be consistent with the
historic preservation standards.

You are matching d dollars to fund approximately one-third of the estimated total cost of e dollars. C must raise
f dollars of the remaining estimated costs from other sources. The City of C will use d 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, and staff salaries.

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 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 B.
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. Your agreement with the City of C
provides that the grant be paid by no later than G.

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 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