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Thursday May 30, 2024

Private Letter Ruling

Foundation's Set Aside Approved

GiftLaw Note:
Foundation is tax-exempt under Sec. 501(c)(3) and a private foundation under Sec. 509(a). Foundation’s purpose is to serve orphans and other destitute children with a preference given to those with pure or part Aboriginal blood. Foundation requested approval to set aside funds in connection with renovation and construction of a facility that will be used to house programs such as sports, arts, creative media, music, dance, technology and other youth enrichment programs. Foundation requests the approval of a set-aside rather than an immediate payment of funds as the renovation and construction costs will be incurred over time. Payments will be completed no later than 60 months from the date of the first set-aside.

Under Sec. 4942(g)(2)(A), an amount set aside for a specific project may be a qualifying distribution if it meets the requirements of Sec. 4942(g)(2)(B). Section 4942(g)(2)(B)(i) allows for a set-aside if the organization establishes that the amount will be paid within five years and the project can be better accomplished using the set-aside than by an immediate payment. Under Reg. 53.4942(a)-3(b)(2), projects that require long-term expenditures requiring more than one year’s income may be better accomplished using a set-aside. Here, the Service determined that Foundation’s facility project would be better accomplished by a set-aside rather than an immediate payment. As such, Foundation’s request for a set-aside is approved under Sec. 4942(g)(2).
PLR 202408011       Foundation’s Set Aside Approved

2/23/2024 (11/29/2023)

Dear * * *:

Why you are receiving this letter

We received your December 22, 2022 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 are a charitable trust created for the purpose of serving orphan and other destitute children in the B, with preference given to children of pure or part aboriginal blood. You are recognized as exempt under IRC Section 501(c)(3) and classified as an exempt operating foundation under IRC Section 4940(d).

The amount of the set-aside under IRC Section 4942(g)(2) being requested for 2022 is x dollars. The set-aside is for the renovation/construction of your C located at D which will be used in furtherance of your exempt activities. Specifically, the facility will be used to house multidisciplinary pathway programs such as sports, arts, creative media, music, dance, emerging technology, and other youth development programs.

You do not have any immediate plans to add an additional set-aside amount for this project after the year * * *. However, should unforeseen delays arise due to permitting and other issues beyond your control, you may request future set-asides.

The use of a set-aside to designate funds for renovation/construction of this project ensures that the funding will be available as the renovation/construction costs are incurred over time. Your statement certifies that the set-aside will actually be paid by you no later than 60 months from * * *.

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 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.

We have sent a copy of this letter to each representative authorized Form 2848, Power of Attorney and Declaration of Representative.

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


Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements
Redacted Letter 4797
Letter 437

Published March 1, 2024
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