IRS grants a private foundation more time to spend a set-aside for a construction project delayed by COVID-19

Plain-English summary

A private foundation had earlier been approved to "set aside" money for a specific construction project, a device that lets a foundation count committed-but-unspent funds toward its required annual payout as long as the money is spent within five years. The project ran into trouble: the original site was not ideal, the foundation switched to renovating an existing building instead, and COVID-19 caused significant delays. With the 60-month spending deadline about to pass unmet, the foundation asked the IRS to extend the payout period. The IRS approved the extension, finding the foundation showed good cause under IRC § 4942(g)(2)(B)(i) and Treas. Reg. § 53.4942(a)-3(b)(7). This matters to foundations because missing a set-aside deadline can trigger the § 4942 excise tax on undistributed income, and an extension keeps the earlier approval intact.

Ruling snapshot

• Question: Should the IRS extend the payout period for a previously approved set-aside where good cause (COVID-19 construction delays) is shown?
• Outcome: Approved
• Key authorities: IRC § 4942(g)(2)(B)(i); Treas. Reg. § 53.4942(a)-3(b)(7)(i)(e)

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities

IRS P.O. Box 2508
Cincinnati, OH 45201

Date: 05/23/2023

Employer ID number:

Person to contact:
Name:
ID number:
Telephone:

Release Number: 202333008
Release Date: 8/18/2023

LEGEND UIL: 4942.03-07
B = year
c dollars = amount
D = enter
F = date 1
G = date 2
H = date 3
J = date 4
K = date 5

Dear

We received your G request for -month extension to pay out a set-aside approval on H. Based on the information furnished, we approved your request.

Our ruling dated J approved a c dollars set-aside for the year ending K for the purpose of completing the construction project related to your exemption purpose. You stated the set-aside would be expended within months.

Description of your set-aside request
In B you submitted and received approval for a set-aside in the amount of c dollars toward the development and construction of D. Planning work revealed the selected location for D would not be ideal; another existing structure was found to be more suitable but would require renovation/retrofitting. During subsequent planning phases for this project you experienced significant delays in renovating the newly selected facility due to COVID-19. As a result of these delays, it is highly unlikely that the approved set-aside funds will be expended within the 60-month period.

Therefore, you are requesting a -month extension to the advance approval set-aside amount granted in B of c dollars for the completion of D. All set-asides totaling c dollars are now anticipated to be disbursed by F. You expect updated budgetary and project timelines will allow you to complete the planned project by the given time frames.

Basis for our determination
Internal Revenue Code (IRC) Section 4942(g)(2)(B)(i) provides requirements for approval of a set-aside for a specific project that will be paid out in five years. A foundation must establish that the project can be accomplished better by using the set-aside instead of by making an immediate payment. A set-aside may have its period to pay extended if it satisfies the requirements of IRC Section 4942(g)(2)(B)(i) and good cause is shown.

Treasury Regulation Section 53.4942(a)-3(b)(7)(i)(e) states that you must provide a statement showing good cause as to why the set-aside payment period should be extended, specifying the requested extension of time.

Additional information
This determination may only be used by 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/set-asides for more information.

We'll make this determination letter available for public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the enclosed Letter 437, Notice of Intention to Disclose, and review the attached 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 4798
Letter 437

Letter 4798 (Rev. 12-2021)
Catalog Number 58294S