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PLR 201152021 – Set Asides Still Qualifying Distributions

By Gerry W. Beyer

Images-1Trustees for Foundation approved the demolition of old facilities and the construction of new facilities. The trustees further approved the set aside of funds for these changes. The Foundation agreed that operating cash already in existence and proceeds from selling certain real estate holdings would fund the project. They also agreed that they could use the funds within a 60 month window as required by Reg. 53.4942(a)-3(b)(1).

Three years later, the Foundation realized that the redevelopment would cost significantly more than the estimates and that financing the project through a banking institution would be more successful than their original plan. The Foundation wanted a ruling from the IRS that “the use of debt to satisfy all or a portion of the initial and additional set asides will not cause the amounts to fail to be qualified distributions under Sec. 4942(g)(2)(B)(i).”

In PLR 201152021, the IRS found that the application for the set asides was in line with regulations and that neither the statute nor regulations “specify or limit the source of funds to be used for a project.” Ultimately, the use of debt to pay the set aside amounts does not disqualify the set asides from being treated as qualifying distributions.

PLR 201152021 – Set Asides Satisfied with Debt Are Qualifying Distributions, Crescendo Interactive GiftLaw, Jan. 9, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.