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IRS Advance Approval of Set-Aside

Approval of a set-aside must be obtained from the IRS for the set-aside to qualify under the suitability test. No advance approval is required for qualification under the cash distribution test. A foundation must apply for Service approval by the end of the tax year in which the amount is to be set aside.  If the foundation fails to seek approval before that date, an otherwise proper set-aside will not be treated as a qualifying distribution.

To obtain approval for a set-aside under the suitability test, a foundation must request a private letter ruling.  The request must include:

  1. A statement describing the nature and purposes of the specific project and the amount of the set-aside for which approval is requested,
  2. A statement describing the amounts and approximate dates of any planned additions to the set-aside after its initial establishment,
  3. A statement of the reasons why the project can be better accomplished by the set-aside than by immediate payment,
  4. A detailed description of the project, including estimated costs, sources of any future funds expected to be used for completion of the project, and the location or locations (general or specific) of any physical facilities to be acquired or constructed as part of the project, and
  5. A statement by an appropriate foundation manager that the amounts set aside will actually be paid for the specific project within a specified period of time ending not more than 60 months after the date of the first set-aside; or a statement showing good cause why the period for paying the amount set aside should be extended (including a showing that the proposed project could not be divided into two or more projects covering periods of no more than 60 months each), and giving the extension of time requested.

 

Page Last Reviewed or Updated: 19-Mar-2016