Pandemic Provides Basis for Successful Set-Aside Requests

The IRS approved a private foundation's set-aside program, reflecting the “tremendous impact the COVID 19 shutdown” in a state “has had on all current construction projects” (Priv. Ltr. Rul. 202053017). The purpose of the requested set-aside “is to ensure that these projects will be properly managed, monitored and brought to a satisfactory and quality conclusion in a successful and timely manner.” The foundation asserted it would not be prudent to pay the contractors the total amount prior to the completion of the entire job.” It observed that, due to the pandemic, the “timelines for when these projects will be completed is uncertain.” The final successful argument was that this set-aside approach will allow the foundation to “maximize control over the projects, with the goal of a achieving a better and successful result.”

The IRS approved a private foundation's request for a 60-month extension to pay out a set-aside amount that was approved in 2016 (Priv. Ltr. Rul. 202102014). The project involves relocating a museum from one country to another. Four factors have contributed to the delays. One, the foundation received a large contribution that doubled the museum's collection, and a suitable site for the new collection has not been located. Two, there have been dramatic increases in land values, costs of construction and the national sales tax. Three, there is going to be a shortage of manpower. Four, the global pandemic “has caused delays and has affected [the] economy of all areas” in the country involved, with tens of thousands of workers forced to remain home. [12.4(b)]

Note: The correlation of these rulings and the pandemic was reported in the EO Tax Journal on February 4.