Foundation's Set-Aside Approved

Published June 12, 2026

GiftLaw Note: Foundation is tax-exempt under Sec. 501(c)(3) and a private foundation under Sec. 509(a). Foundation requested approval to set aside funds to restore a historic property that is listed on the National Register of Historic Places. The property is owned by a public charity that is undertaking the second phase of a rehabilitation project that will restore the exterior, interior, foundation and mechanical, electrical and plumbing systems. Foundation will provide a matching grant to pay for reimbursable costs such as labor, materials, fees and permits. Foundation requests the approval of a set-aside rather than immediate payment of funds to stimulate grants from the community, given the extent and cost of the rehabilitation and restoration that will be required. Foundation requests the approval of a set-aside and expects distributions 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 set-aside is approved under Sec. 4942(g)(2).

PLR 202623019                       Foundation’s Set-Aside Approved

6/5/26 (3/10/26)

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 side e dollars to provide funds to restore C, a historic property. C is listed on the National Register of Historic places and is owned by B, an IRC Section 501(c)(3) public charity. B is working on the second phase of a historic rehabilitation project to restore exterior, interior, foundation, and mechanical, electrical, and plumbing systems.

You have a matching grant agreement with B to provide e dollars to fund approximately one-third of the estimated total cost of the restoration project, which is g dollars. B must raise f dollars of the remaining estimated costs from other sources. B will use e 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 project is better accomplished using a set-aside 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 C. The approximate five-year period provided in the agreement to raise the necessary matching funds has been mutually agreed upon 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. The agreement provides that the grant be paid by no later than H.

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 the person shown above.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Redacted Letter 4797
Letter 437