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Saturday July 22, 2017

Private Letter Ruling

Foundation's Set-Aside Approved

GiftLaw Note:
Private Foundation requested advanced approval of a set-aside under Sec. 4942(g)(2). Private Foundation initiated B Symposium several years ago. Private Foundation plans to offer a second Symposium in a future year to bring together young scholars to share ideas, methodologies and perspectives. Private Foundation plans to set aside a certain amount of funds in advance to save for the symposium. These funds will be paid not more than 60 months after the date of the first set-aside.

Under Sec. 4942(g)(2)(A), an amount set aside for a specific project may be treated as a qualifying distribution if the amount will be made within five years and if either Sec. 4942(g)(2)(B)(i) or 4942(g)(2)(B)(ii) is satisfied. Sec. 4942(g)(2)(B)(i) allows the set-aside if the private foundation establishes that the project can be better accomplished using the set-aside than by making an immediate payment. Under Reg. 53.4942(a)-3(b)(2), 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. Here, the Service concluded that Private Foundation's Symposium project can be better accomplished by a set-aside rather than by an immediate payment of funds. As such, Private Foundation's set-aside program was approved.
PLR 201727010 Foundation's Set-Aside Approved

7/7/17 (4/11/17)

Dear * * *:

Why you are receiving this letter


This is our response to your December 29, 2016 letter requesting approval of a set-aside under Internal Revenue Code section 4942(g)(2). You've been recognized as tax-exempt under section 501(c)(3) of the Code and have been determined to be a private foundation under section 509(a).

Our determination


Based on the information furnished, your set-aside program is approved under Internal Revenue Code section 4942(g)(2). As required under section 4942(g)(2), the set aside amount must be paid within the 60-month period after the date of the first set-aside.

Description of set-aside request


Among various endeavors, you initiated the first B Symposium a few years ago, bringing together a group of promising young scholars from around the world to share their academic interests through presenting research papers from different sub-disciplines using an innovative methodology of preparing and distributing their research papers several months before the Symposium and doing summaries of papers other than their own. The result was a resounding success with eagerness from various corners to see a continuation of this kind of symposium.

You are planning a second B Symposium in year C. You plan to bring together a group of promising young scholars who are eager to explore and share new ideas, new methodologies, new perspectives and new disciplines through creative interactions, thereby broadening their minds and widening their horizons.

To help save sufficient funds for the year C Symposium, you will set aside funds. You plan to set aside f dollars in the year D as an initial establishment for the year C Symposium and another f dollars in the year E.

All funds set aside will be paid in year C; therefore, all amounts set aside for this project will be paid not more than 60 months after the date of the first set-aside in year D.

Basis for our determination


Internal Revenue Code section 4942(g)(2)(A) states that an amount set aside for a specific project, which includes one or more purposes described in section 170(c)(2)(B), may be treated as a qualifying distribution if it meets the requirements of section 4942(g)(2)(B).

Section 4942(g)(2)(B) of the Code 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.

Section 4942(g)(2)(B)(i) of the Code 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.

Section 53.4942(a)-3(b)(1) of the Foundations and Similar Excise Taxes Regulations 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 section 53.4942(a)-3(b)(2).

Section 53.4942(a)-3(b)(2) of the Foundations and Similar Excise Taxes Regulations 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 Internal Revenue Code section 4942(g)(2).

What you must do


Your approved set-aside(s) will be documented on your records as pledges or obligations to be paid by the date specified. The amounts set aside will be taken into account to determine your minimum investment return under Internal Revenue Code section 4942(e)(1)(A), and the income attributable to your set aside(s) will also be taken into account in computing your adjusted net income under section 4942(f) of the Code.

Additional information


This determination is directed only to the organization that requested it. Internal Revenue Code section 6110(k)(3) provides that it may not be used or cited as a precedent.

Please keep a copy of this letter in your records.

If you have any questions, please contact the person listed in the heading of this letter.

Sincerely,
Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements
Enclosure
* * *

Published July 14, 2017

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