IRS approves a five-year scientific grant set-aside

Plain-English summary

A private foundation proposed setting aside funds for grants to organizations conducting research expected to advance chemistry and life sciences. The grants would support the purchase and operation of redacted scientific equipment, related staffing, and research costs, with recipients contributing additional funding. The foundation planned a two-stage proposal process, scientific review, site visits, monitoring, and audit rights. Because the multi-year project required time to select recipients and assemble appropriate research teams, the IRS approved the set-aside under section 4942(g)(2), subject to payment within 60 months after the first set-aside.

Ruling snapshot

• Question: May the foundation treat funds reserved for a multi-year scientific research grant program as a qualifying distribution?
• Outcome: approved
• Key authorities: IRC §§ 170(c)(2)(B), 4942(e), 4942(f), and 4942(g)(2); Treas. Reg. § 53.4942(a)-3(b)

Full text (IRS public release)

Internal Revenue Service
P.O. Box 2508
Cincinnati, OH 45201

Release Number: 202010007
Release Date: 3/6/2020
Date: December 11, 2019

LEGEND:
B = state
C = year
D = organizations
E = date 1
F = date 2
G = date 3
H = date 4
J=date 5
K = date 6
L = date 7
M = date 8

t dollars = amount 1

u dollars = amount 2
v dollars = amount 3
w dollars = amount 4
x dollars = amount 5
y dollars = amount 6
z dollars = amount 7

Dear

Why you are receiving this letter

Department of the Treasury

Employer Identification Number:

Contact Person - ID Number:

Contact Telephone Number:

VIL:
4942.03-07

This is our response to your May 8, 2019 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

You were formed under the laws of the State of B in C. You are recognized as an
organization described in Internal Revenue Code Section 501(c)(3) of the and as a
private foundation within the meaning of IRC Section 509(a).

You wish to set aside grants totaling t dollars to D. The grants will be payable over
a period not to exceed 60 months from E. The proposed grant timeframe is as
follows; u dollars in H, J, K and L and v dollars in M. There are presently no
planned additions to the grants after the initial establishment.

The nature and purpose of the research project is to provide up to grants for
the purchase, , and operation of . The
discoveries possible with these are expected to promote significant advances in
chemistry and life sciences.

Each requires . Due to the
amounts of data generated,

. The set-aside will allow you the
time to identify and select the most appropriate D to prepare and assemble the
appropriate teams to utilize the

The cost of each is typically w dollars with a service contract.
Dedicated technical support staff is required at x dollars for . On site data
processing/analysis support personnel is also required at x dollars for

Therefore, each site is expected to require y dollars.

You expect to provide support of about t dollars per site with the D providing a
cost-share for the remaining costs. Each possible grant recipient must
demonstrate their commitment for additional funding beyond the z dollars support
from you.

You will use a two-stage submission process. Your pre-proposal grant submission
deadline is F. Full proposals will be solicited from invited institutions.

You will consider grant requests from individual D or from a consortium of D.
However, for any consortium of D, there must be a lead institution. Such lead
institution will maintain the on their property and will accept the entire
grant award on behalf of the consortium.

Grant proposals should be centered around problems and a
research program that is enabled by the . Successful proposals must
also include a detailed plan regarding how data scientists will be incorporated into
the research teams, how such incorporation will further research goals and how
the research will be shared with the broader research community.

Proposals will include descriptions of up to three distinct research projects to
which the will be applied that will represent core advances within this
larger research program. If instrumentation development work is proposed the D

should address alternative strategies that will be pursued should the new
technological developments fail. Each D grant applicant should identify the exact

configuration of that will be purchased in the proposal and justify why
that level of capability is necessary and appropriate for the proposed research
program. All and related equipment purchases and must

be complete within two years of the program awards, currently anticipated in G.

It is anticipated that the D will already have adequate facilities and infrastructure to
support the , will develop data analysis pipelines of broad utility to
others, and will support various training programs. Presently there are no plans to
acquire or construct new physical facilities as part of the project. Applications will
be reviewed by a scientific review committee appointed by you.

Each D will agree to your terms and conditions regarding the grant. Such
conditions include that the funds are to support the direct purchase and operation
of the and associated research costs and not for overhead or indirect
costs, nor for other research.

You reserve the right to schedule site visits to the D grant recipient and monitor
the facility construction and and operation. You have the
right, at any time during the term of the grant, to request an independent audit
related to the accounts related to the grant. Should the audit prove unsatisfactory
you have the right to terminate the award immediately and the D agrees to return
the value of the award to you within 60 days of termination.

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. We have sent a copy of this letter
to your representative as indicated in your power of attorney.

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

Sincerely,

Steven A. Martin
Director, Exempt Organizations
Rulings and Agreements