Affordable senior housing set-aside approved

Plain-English summary

A private foundation sought approval to set aside funds for construction of an apartment building that would provide affordable housing to low-income older adults. The foundation already housed independent-living residents and had more seniors on a waiting list than the proposed building could accommodate. Pandemic-related staffing shortages and supply-chain delays pushed the project beyond its original schedule and made immediate spending impractical. The IRS concluded that the long-term construction project was better accomplished through a set-aside and approved the request under section 4942(g)(2). The foundation must pay the set-aside amounts within 60 months after the first set-aside.

Ruling snapshot

• Question: Could the foundation use a set-aside for a delayed affordable senior housing construction project?
• Outcome: Approved, with payment required within 60 months after the first set-aside
• Key authorities: IRC §§ 170(c)(2)(B), 4942(g)(2); Treas. Reg. § 53.4942(a)-3(b); Rev. Rul. 74-450

Full text (IRS public release)

Department of the Treasury                                      Date: 08/07/2023
Internal Revenue Service
Tax Exempt and Government Entities                              Employer ID number:
P.O. Box 2508
Cincinnati, OH 45201 Person to contact:

Name:

Release Number: 202344022                                      Telephone:

Release Date: 11/3/2023 Fax:

LEGEND UIL: 4942-03-07

C= Date

D = Date

E = Date

F = Date

G = Date

J= Date

L = Date

M = Date

N = Date

O = Year

P = Number

Q = Number

R = Number

u dollars = Amount
v dollars = Amount
w dollars = Amount

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).

Letter 4797 (Rev. 10-2021)

Catalog Number 58293H

Description of set-aside request
You are requesting a set-aside for your project for tax year ending D for v with an additional amount set-aside

on E for w. Your project is to build a P unit apartment building to further your mission to provide low income
elderly with affordable housing. You currently house Q independent living elderly residents in various units
located on your current campus. You currently have R seniors on your waiting list. While this building will not
allow you to facilitate the move-in of all the persons on your current list, it will allow you to provide relief to a
large number of them.

Your project will cost u dollars and will be completed by C. Your project started early O but due to the COVID
pandemic, which caused staffing shortages and supply chain delays, your project could not start until the end of
O. This delay made it necessary to request a set-side to combat the lingering pandemic delays and meet the
expenditure requirements. You provided the location and layout of how the apartment building will be
constructed, along with the following project timeline:

* Architect hired on F

* Schematic Design by G (not completed due to architect staff delays)

* Site Development Review by J

* Design Development by E

* Construction Contract by L

* Building Permit by M

* Construction completion by N (supply chain delays and construction staffing delays expected and accounted
for in this estimate)

* Certificate of Occupancy by C

Your project is better accomplished by the set-aside approach due to the COVID pandemic, which caused
staffing shortages and supply chain delays. As a result, you are unable to spend funds on your approved project
according to your original timeline.

You provided a statement indicating that the set-aside will actually be paid within a specified time period not to
exceed 60 months from the date of the first set aside.

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.

Letter 4797 (Rev. 10-2021)
Catalog Number 58293H

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

Letter 437

Letter 4797 (Rev. 10-2021)

Catalog Number 58293H