[Michlib-l] RESPONSES: RE: Libraries with 501(c)(3) status

Rebecca Higgerson rhiggerson at brandonlibrary.org
Wed Dec 18 11:52:16 EST 2019

Thanks to everyone who responded!!

Phone calls with:

*Jennifer Balcom* | Library Director | DeWitt District Library
P: 517-669-3156 <517-699-3156> | jbalcom at dewittlibrary.org

   - Worked with Foster Swift
   - Application was 100 pages
   - Cost was approximately $5,000
   - Paid CPA for assistance
   - Can take 6 months-18 months
   - Already have $1500 grant, third of the way to paying for itself
   - No cons
   - Plan to go for a new building in the future

*Lance Werner*

*Director, Kent District Library*

616-784-2007 // lwerner at kdl.org

   - Worked with Warner Norcross & Judd
   - Took about 18 months
   - $4,000-$5,000+ mostly atty fees
   - Definitely worth it


What you are really doing is setting up a 501 (c)3 as a separate entity.
It all has to do with government and public funds.  I really recommend you
talk to your auditors and an attorney to understand this. –Stephanie Mallak
Olson, Iosco-Arenac District Library


If you have a local Community Foundation you might want to check out
setting up the 501(c)3 funds with them for a better rate of return on
investments.  We have several Friends groups (one is a library Friends
group) that set up both an endowment fund and a cash pass through fund.  If
the Friends set up a 501(c)3 it may open more doors for donations from the
corporate world.

So far we have not received any big amounts to warrant going for a
501(c)3.  We have heard that you cannot mingle public funds but there are
always exceptions to some moneys.  We also understand it will need a
separate Board.

Good luck and best wishes,

Stephanie Mallak Olson, Iosco-Arenac District Library


*I can only speak to a few of these issues.*

*Pros of being a 501c3 makes us eligible for some grants, eligible for some
TechSoup discounts / other discounts*

*Cons we have to have a yearly audit done with a 990 being filed every
year.  This audit costs us around $2500 with an additional $1000 for the
990 preparation;*

*Our friends group is NOT a 501c3*

*Not sure the ROI is worth it or not.*

*That’s just my 2 cents that’s not worth a whole lot.*

*Good luck.*

Nannette Pretzer, Director

St. Charles District Library

132 S. Saginaw Street

St. Charles, MI  48655



n.pretzer at stcharlesdistrictlibrary.org


The Sebewaing Township library is also listed as a 501 (c)(3).   I would
contact your accountant and/or your township administrators as they may be
able to clear up some of your questions.   Also, I googled 501 c 3 township
library and it has a link to the American Library Association and the
difference between the different tax statuses.  The Library of Michigan may
be able to clear up some of your questions without giving legal advice.

Angela Pike


Sebewaing Township Library

41 N. Center St.

Sebewaing, MI 48759



I think the new board asked some questions to Shannon White and Clare
Membeila from Library of Michigan who got them pointed in the right
direction. – Holly Kirsten, hollykirsten at chelibrary.org


I recently did a 501c3 for our Friends organization.  I am not sure of the
law concerning doing this for your library.  I would contact Clair at the
Library of Michigan.

We did use an attorney and he donated his time.  There is a $20. Filing fee.

Then there is the IRS.  I used a retired CPA for advise but the forms are
on line and not too hard to figure out.  You must have an ENN number.  The
501c3 filing fee was $175.

Once I figured out what to do it took me about 2 months.  I still don’t
have all the paperwork back and I started the process late Oct of this
year.  I still have not done the MI forms.

We did this so we could write more grants.  There are greater grant
opportunities if you’re a 501c3.  I would say that is the best reason to

I’d be happy to answer any other questions you have,


Mary K. Hill


Hillsdale Community Library

11 East Bacon St.

Hillsdale, MI



Thanks to Jim MacLean at CADL for forwarding this article to me. I have
never heard of a library itself being a 501(c)3 and from what I have read I
didn't think it was allowed. So I am now interested in seeing what Michigan
libraries who have made this change have to say in response to Rebecca's

This is why I love to stay in touch with Michigan libraries despite being
in Wisconsin now. Each state has its own way of doing things, plus
visionary changes to the usual way for library-ing that we don't hear about.




Nyama Y. Reed

Library Director

N.Reed at WFBLibrary.org

414-755-6551 (direct line)

Whitefish Bay Public Library

5420 North Marlborough Drive

Whitefish Bay, WI 53217

414-964-4380 (main line)


Hello Rebecca,

I have been working on such a thing for the past 2 years. To my
understanding, the library itself cannot be a 501(c)3. Please see this
summary: " Public libraries that are government agencies can receive
donations, and they are tax-deductible for donors, so the question is,
should your Friends or foundation become a 501(c)(3)?" Hence a library
CANNOT be a 501(c)3, rather they can have a Friends or Foundation that is a
501(c)3 and provides the library with additional financial support.


They are then legally and financially separate from the library. This can
have positives and negatives.

My library already has a Friends group that has been operating long before
my 6 years here. They are excellent. They have all the requisite paperwork
in place and used a lawyer to help them set it up years ago. There is a
board with monthly meetings and a treasurer, who happens to be an
accountant, who handles all the money and the annual tax returns. The
library cannot tell them what to do, since they are legally separate. They
choose to give us money and approve what we use it for. This year they gave
us $35,000 and we use the money for programming, tech, and furniture -
"enhancements" not in our operational budget which is funded by tax dollars
and fines.

We are in the process of also creating a 501(c)3 Foundation, with a
different mission than the Friends group. The goal of the Foundation is
specifically to raise $5 million, which will then be invested and the
annual interest income will be given to the library to support our
strategic plan initiatives (i.e. a building study, new study rooms, more
solid funding for programming, staff and collections).

1.       Did you pay an attorney? Yes, we interviewed 4 attorneys based on
recommendations from other libraries or online reviews. There were
surprisingly few attorneys in the Milwaukee area that specialized in
setting up non-profits. Certainly, you could use any lawyer, not one who
specializes. Another area library used an attorney to set up their fund
after receiving a $5.5 Million bequest and the total bill was between
$10k-20k. Bc the attorney can be very expensive, and we don't have that
amount of money, we are writing the bylaws ourselves using other library
foundation bylaws as an example. We will then run the final bylaws by the
attorney with questions and have her file the official state paperwork and
the IRS paperwork. Luckily we have an attorney on the Foundation Board and
she has helped us hone things with a legal eye, though her area of
expertise is not in establishing non-profits. We are hoping our total
attorney costs will be under $5k.

2.       Did you use free legal assistance? In my experience free "legal
aid" doesn't do this sort of thing and as mentioned above we were not able
to find a local lawyer willing to do it for free. It's still worth the
effort to see if you can find an area attorney who will work with you for
free or lower cost, or even get them to join the Board.

3.       How long did the process take? Don't be scared off by my saying I
have been working on it for two years. We created a very large, ambitious,
strategic plan in 2016. In 2017 we started looking at what it would take to
create the foundation, then create the investment fund at the area
Community Foundation (i.e. the actual investment vehicle), etc. We
interviewed attorneys this past Spring, then interviewed people for the
Foundation Board, I started the Bylaws based on examples and have been
sending them to the board members via email for feedback. We were delayed
by a couple urgent big issues that came up and took my time away from the
bylaws, and then I got a concussion which resulted in no work on it for 2
months. I am back at it with the goal of finishing the bylaws draft by the
end of this month and completing the Foundation paperwork with the lawyer
in the 1st quarter of 2020. I would imagine setting up a Friends group
would be much easier time-wise. A full foundation for investment purposes
is a little more work.

4.       What are the pros in being a 501(c)(3)? Again a library itself is
not allowed to be a 501(c)3. I think the more accurate question is what are
the pros and cons of a library establishing a Friends group or a
Foundation. The pros are you have people interested in raising money for
your library and then giving you the money for library projects. They
provide financial support beyond what the municipal tax base provides. They
can organize and hold book sales or "wine tastings" as special events.
Things that staff don't have the time to do.

5.       Are there cons in being a 501(c)(3)? The cons to a Friends group
or Foundation is that they may view the raised money as THEIRS. Their
territory. And they may not approve you using it for what you wish, or they
turn it into a fiefdom with feelings of power. I have seen very
dysfunctional Friends and Foundations and have heard horror stories from
other libraries. Thankfully my current Friends group has no drama or power
issues. I am working very hard to set-up our coming Foundation so they
raise the money, it goes directly into the investment fund, and then the
interest income is passed to the library at the end of the year to "support
the Library Board approved strategic plan initiatives." The Foundation will
have no input in how the money is used and cannot say "no." Another con may
be that your municipality may say: Oh, you have $5 million in your
foundation so we can cut your budget...  I have found that getting "only"
$35k from our Friends group does not impact our municipal funding. When it
comes up I explain that the Friends enable us to replace all of our
furniture so we didn't have to make a capital request to the Village for
it. With the goal of $5 million in a fund, potentially generating interest
income of $250,000/year (fyi, our annual budget is $800,00 of which we get
$700,000 in municipal taxes), we will protect the money by having donors
specifically state what the money is for. i.e. strategic initiatives, not
new carpeting or the electric bill.

My advice is to figure out WHY you or someone else wants the library to be
a 501c3 - or more accurately - why you want Friends or a Foundation to do
fundraising for you and give you extra money. How much? $5,000 per year in
book sales or $1 million for a building addition? Knowing your end goal
will help you determine if it is worth it. I don't know that it'd be worth
the effort for $1,000/yr. But maybe for $5k-10k/yr. Definitely for

6.       Is your Friends group a 501(c)(3)? Yes

7.       In retrospect, are you glad your library is a 501(c)(3)? Not

8.       Is the ROI worth it? The ROI on our Friends is totally worth it.
The pending ROI on a Foundation remains to be seen, but if we do not raise
$5 Million and use it to solidify our funding base, then we will end up
having to make major cuts in the future. Avoiding cuts, and potentially
finding extra enhancement, makes it worth it to me.

Best of luck on whatever path you take. Feel free to email or call me
anytime to ask questions. And check out this article on how my neighboring
library set-up and defined what their bequest will be used for (i.e.
protecting it from calls to use it for operational expenses). PS I'm
totally happy for them but jealous that they got a huge donation and I am
working to raise that much. :-)


Nyama Y. Reed

Library Director

N.Reed at WFBLibrary.org

414-755-6551 (direct line)

Whitefish Bay Public Library

5420 North Marlborough Drive

Whitefish Bay, WI 53217

414-964-4380 (main line)


Hi Rebecca:

There are circumstances under which a library can be a 501(c)(3), but as
Nyama indicated, it is important to consider why  the library is interested
in becoming a 501(c)(3). Currently, the IRS Tax laws grant public libraries
tax exempt status under a different provision of the code, so a public
library does not need a 501(c)(3) designation for fundraising.

The big reason I can see for a public library to obtain 501(c)(3) status is
grant writing. Many large grant making organizations and foundations
require 501(c)(3) status in order to compete for grants. As far as I can
tell in research, a big reason for this is that large grant making
foundations save time and costs if dealing only with 501(c)(3) institutions
because then the grant seekers have already been vetted- the grant makers
don’t have to expend extra time and effort verifying the authenticity of

However, lack of a 501(c)(3) status doesn’t prevent libraries from
obtaining ALL grants, and occasionally even the large grants are obtainable
after a conversation with the grant making organization and proof of
tax-exempt status (which can be obtained from the IRS in the form of a

501(c)(3) status requires extra paperwork and reporting annually, and comes
with a slate of restrictions and regulations. The regs are not particularly
onerous, but it is another layer of administration a library would have to
contend with – on top of existing library financial auditing and accounting
requirements. That is not to say it isn’t doable – quite the contrary- but
it is something to consider.

There are several libraries in Michigan which have 510(c)(3) status. Many
are fairly large libraries. The attached memo provides a link to an article
that mentions a few of them.

I urge you to consult your accountant/auditor and an attorney before making
your decision. If you do go for 501(c)(3) status, you would want assistance
from an attorney to complete the IRS form. It is worth the cost!


https://www.irs.gov/pub/irs-tege/eotopicf96.pdf):*“A fire department,
public library, hospital district, state college, or port authority are
examples of state institutions that may be created, controlled by, or
closely affiliated with government. And their income may be exempt from
federal income tax pursuant to IRC 115(a), (see Appendix), except for
unrelated business income tax for certain state colleges and universities
under IRC 511(a)(2)(B). Nevertheless, each may also qualify for exemption
as a clear counterpart of an organization described in IRC 501(c)(3), if it
is not an integral part of a state or a political subdivision, and it
otherwise satisfies the organizational and operational tests. The term
"instrumentality" has been applied to this type of organization as a kind
of shorthand. Technically the term "instrumentality" only has application
under the FICA and FUTA (social security tax) provisions. However, for
convenience, this article will also refer to these organizations affiliated
with governments as instrumentalities. “ *This is saying that if a public
library satisfies the requirements to be a 501(c)(3),and it isn’t an
“integral part of a state or political subdivision,” it could be a

I hope this is helpful! Please let me know if I can provide any additional



Clare D. Membiela, MLS, J.D.

Library Law Consultant

Library of Michigan

MembielaC at michigan.gov


*From:* michlib-l-bounces at mcls.org <michlib-l-bounces at mcls.org> *On Behalf
Of *Rebecca Higgerson via Michlib-l
*Sent:* Wednesday, December 11, 2019 3:10 PM
*To:* michlib-l at mcls.org
*Subject:* [Michlib-l] Libraries with 501(c)(3) status

In our current Strategic Plan, we were asked to investigate 501(c)(3)
status for our library.  For those of you who have done this, I would
appreciate getting some feedback:

1.       Did you pay an attorney?

2.       Did you use free legal assistance?

3.       How long did the process take?

4.       What are the pros in being a 501(c)(3)?

5.       Are there cons in being a 501(c)(3)?

6.       Is your Friends group a 501(c)(3)?

7.       In retrospect, are you glad your library is a 501(c)(3)?

8.       Is the ROI worth it?

Thanks in advance!

*Rebecca Higgerson*


Brandon Twp Public Library

304 South Street

Ortonville MI 48462


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