## Facts

- A private foundation was organized for wildlife protection and was recognized as tax-exempt under § 501(c)(3) of the Internal Revenue Code.
- The foundation owned land that it operated as a wildlife sanctuary.
- The foundation received a substantial bequest of additional real estate that roughly doubled its land holdings.
- The foundation planned to use part of the new land to expand its wildlife sanctuary.
- The foundation planned to convert the remaining land into a public park.
- The conversion project was governed by a contract projecting completion over four years.
- The project’s total cost was projected to be several times the foundation’s annual income.
- Although the overall cost was large relative to annual income, the contract provided that most of the amount would not become due and payable until the third year of the project.
- The foundation applied to the IRS for approval to treat amounts set aside for the project as qualifying distributions, so that it could use the § 4942 set-aside mechanism without incurring excise tax for failure to make required distributions.
- The IRS issued the revenue ruling to state how § 4942 would apply to this set of facts.

## Issues

1. Whether the foundation may treat amounts set aside for the four-year public-park conversion project as qualifying distributions under § 4942, so that it will not be subject to excise tax for failure to make the required minimum distributions while funds are accumulated for the project.
2. Whether the planned use of the bequeathed real estate—expanding a wildlife sanctuary and converting other land into a public park—constitutes a charitable use consistent with the foundation’s § 501(c)(3) purposes for purposes of § 4942 qualifying distributions.

## Decision

- The IRS concluded that, on these facts, the foundation’s requested set-aside for the multi-year park conversion project could be approved and treated as a qualifying distribution for § 4942 purposes.
- Because the project was a specific, defined undertaking with a multi-year timetable and large projected costs relative to the foundation’s annual income (with major payments not due until later years), accumulating funds through a set-aside was an appropriate method of meeting the foundation’s distribution requirements.
- With IRS approval of the set-aside, the foundation would not incur § 4942 excise tax solely because it did not immediately pay out the full amount during the years funds were being accumulated for the project.

## Legal Principles

- A private foundation is generally required to make annual qualifying distributions and may be subject to an excise tax under § 4942 if it fails to do so.
- Qualifying distributions for § 4942 purposes can include amounts paid to accomplish charitable purposes and, in certain circumstances, amounts set aside for specific charitable projects rather than paid out immediately.
- A set-aside is evaluated in light of whether it is tied to a specific project and whether accumulating funds (rather than immediate payment) is a reasonable way to accomplish the charitable objective given timing and cash-flow realities.
- Expenditures to acquire, improve, and dedicate property for charitable use—such as operating a wildlife sanctuary and establishing a public park—can constitute charitable outlays consistent with § 501(c)(3) purposes and therefore can support treatment as qualifying distributions when the statutory and administrative set-aside requirements are met.

## Conclusion

Revenue Ruling 74-450 addresses a wildlife-protection private foundation that inherited substantial additional land and planned a four-year project to expand its sanctuary and convert remaining acreage into a public park. Because the project was concrete, time-limited, and financially significant compared to annual income (with major payments deferred until later years), the IRS approved the foundation’s use of a § 4942 set-aside and treated the set-aside amounts as qualifying distributions, preventing excise tax based solely on the timing of the project funding.


Revenue Ruling 74-450, 1974-2 C.B. 388 (1974)