IRS approves a private foundation's set-aside to fund a foreign cancer hospital under 4942(g)(2)

Plain-English summary

A private foundation asked the IRS to approve a set-aside under Section 4942(g)(2), which lets a foundation count money reserved for a specific long-term charitable project as a qualifying distribution now, even though it pays out over up to five years. The project is a grant to a foreign organization to buy land and build a cancer-treatment hospital. The foundation plans to fund it through a wholly owned LLC that will handle negotiations and release money to the grantee as construction milestones are met, using below-market loans or equity investments. Because acquiring property and moving money in that country is slow and complex, the foundation argued a set-aside protects its assets better than paying everything up front. The IRS found the project met the suitability test for long-term expenditures and approved the set-aside, so the reserved amount counts as a qualifying distribution. The funds must be paid out within 60 months of the first set-aside.

Ruling snapshot

• Question: Should the foundation's set-aside for a foreign cancer-hospital project be approved under IRC Section 4942(g)(2)?
• Outcome: approved
• Key authorities: IRC §§ 4942(g)(2), 170(c)(2)(B); Treas. Reg. § 53.4942(a)-3(b); Rev. Rul. 74-450, 1974-2 C.B. 388

Full text (IRS public release)

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

Date:
09/30/2025

Employer ID number:

Person to contact:
Name:
ID number:
Telephone:

Release Number: 202552027
Release Date: 12/26/2025

LEGEND UIL: 4942.03-07
M = Foreign organization
N = Region
P = Country
q dollars = Amount
r dollars = Amount
s dollars = Amount
T = LLC

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 are a private foundation requesting to set-aside funds to provide a grant to a foreign grantee, M, to be used
for a charitable project including the purchase of land and subsequent development of a hospital to treat cancer
patients in N. The initial amount requested for the project is q dollars. The overall amount to be set aside for the
entire project is up to r dollars. This includes an additional amount of s dollars which will be needed over the
course of the next two to five years. These amounts are contingent on M meeting certain milestones for
acquisition of land and construction of the hospital complex. The additional funds will either be loans to M at
below market interest rates or contributed as an additional equity investment.

M is seeking a suitable property in N that can accommodate the project. In P, acquisition of property is a

Letter 4797 (Rev. 1-2021)
Catalog Number 58293H

complex process. M needs to have funds on hand in order to bid on an appropriate property. Since it is hard to
conduct monetary transactions in P, and there are complex administrative processes related to doing so, you
determined that a set-aside is the best option to protect your assets rather than contributing the funds directly to
M all at once without any assurance that development milestones will be met. As such you have structured the
transfer of funds to T, a limited liability company wholly owned by you. T will handle all negotiations with M
in order to acquire land and construct the project. You anticipate funding s dollars in program related
investments to T over the next 2 to 5 years as M meets time frames. T will be handling the funds to be released
to M as needed to accommodate the overall project.

You attest that the amount to be set aside will actually be paid within a specified period of time that ends not
more than 60 months after the date of the first set-aside.

Since P is a foreign country, you (and subsequently T) will follow the US Department of the Treasury Anti-
terrorist financing guidelines and best practices.

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.

Letter 4797 (Rev. 1-2021)
Catalog Number 58293H

Keep a copy of this letter for your records.

We have sent a copy of this letter to your representative as indicated in Form 2848, Power of Attorney and
Declaration of Representative.

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. 1-2021)
Catalog Number 58293H