Frequently Asked Questions
Who is eligible for the Specific Project Set-Asides?
Requires establishing to the IRS that the project can be better accomplished by a set-aside and will be paid within 5 years.
How does the Specific Project Set-Asides work?
Allows a foundation to treat amounts set aside for a specific project as a qualifying distribution for the current year, even if the money is not paid out immediately.
What law authorizes the Specific Project Set-Asides?
The Specific Project Set-Asides is authorized under IRC §4942(g)(2) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §4942
Source: Internal Revenue Code, Title 26, United States Code
§ 4942. Taxes on failure to distribute income(a) Initial taxThere is hereby imposed on the undistributed income of a private foundation for any taxable year, which has not been distributed before the first day of the second (or any succeeding) taxable year following such taxable year (if such first day falls within the taxable period), a tax equal to 30 percent of the amount of such income remaining undistributed at the beginning of such second (or succeeding) taxable year. The tax imposed by this subsection shall not apply to the undistributed income of a private foundation—(1) for any taxable year for which it is an operating foundation (as defined in subsection (j)(3)), or
(2) to the extent that the foundation failed to distribute any amount solely because of an incorrect valuation of assets under subsection (e), if—(A) the failure to value the assets properly was not willful and was due to reasonable cause,
(B) such amount is distributed as qualifying distributions (within the meaning of subsection (g)) by the foundation during the allowable distribution period (as defined in subsection (j)(2)),
(C) the foundation notifies the Secretary that such amount has been distributed (within the meaning of subparagraph (B)) to correct such failure, and
(D) such distribution is treated under subsection (h)(2) as made out of the undistributed income for the taxable year for which a tax would (except for this paragraph) have been imposed under this subsection.
(b) Additional taxIn any case in which an initial tax is imposed under subsection (a) on the undistributed income of a private foundation for any taxable year, if any portion of such income remains undistributed at the close of the taxable period, there is hereby imposed a tax equal to 100 percent of the amount remaining undistributed at such time.
(c) Undistributed incomeFor purposes of this section, the term “undistributed income” means, with respect to any private foundation for any taxable year as of any time, the amount by which—(1) the distributable amount for such taxable year, exceeds
(2) the qualifying distributions made before such time out of such distributable amount.
(d) Distributable amountFor purposes of this section, the term “distributable amount” means, with respect to any foundation for any taxable year, an amount equal to—(1) the sum of the minimum investment return plus the amounts described in subsection (f)(2)(C), reduced by
(2) the sum of the taxes imposed on such private foundation for the taxable year under subtitle A and section 4940.
(e) Minimum investment return(1) In generalFor purposes of subsection (d), the minimum investment return for any private foundation for any taxable year is 5 percent of the excess of—(A) the aggregate fair market value of all assets of the foundation other than those which are used (or held for use) directly in carrying out the foundation’s exempt purpose, over
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