When a library foundation is established, it becomes a vehicle for gifts, bequests, memorials, fund-raisers, capital campaigns, etc. The library foundation functions as a separate entity and can attain 501(c)(3) status from the Internal Revenue Service. Gifts to this foundation are tax deductible to the donor. One factor which makes setting up a foundation extremely attractive is that many donors such as corporate foundations will give only to organizations that have 501(c)(3) status.
Of course, the library board may also accept monetary gifts and bequests without establishing a foundation. In order to earmark the funds, and demonstrate compliance with the terms of the gift, the board will need to ask the city to establish a library trust account. See “Trust Accounts” section for additional guidance. Gifts or donations made directly to a public library are also tax deductible. Any income the library receives directly must be reported to the city because of its responsibility to account for all income (and expenditures) as required by Iowa Code section 384.20.
A helpful publication is Forming and Funding Public Library Foundations 2nd edition, by Faye Clow, former director of the Bettendorf (Iowa) Public Library Information Center, and updated by Benjamin Goldberg. It may be borrowed from Iowa Library Services or is available for purchase from the Public Library Association in care of the American Library Association.