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Forensic accounting of the Cold Case Posse

About a month ago, I alluded to an investigation into the Cold Case Posse and said that some results could be expected in a month. I now have the expected information as promised.

In March of 2007, Mike Zullo as “Commander” of the Cold Case Posse applied to the IRS for exempt status. The IRS preliminary determination of the Maricopa County Sheriff’s Cold Case Posse, Inc. states that it is not required to file Form 990 (financial reports), that it is a § 501(c)(3) tax exempt organization, and that it is a public charity under § 509(a)(2).

The IRS determination seems reasonable based on what Zullo told the IRS, and what Zullo told the IRS seems reasonable based on the original intent stated at the Posse’s creation in 2007.

The question that I raise now is whether the IRS determination is still appropriate. In order to obtain exemption from filing public financial reports on Form 990, the CCP had to submit a narrative describing itself. It hypothetically describes itself as “organized as a separate entity of the governmental unit that created it.”1 In that narrative, very little is said about financing, only:

The individual posse members, just like volunteer fire fighters, donate their time and efforts to solve these [cold] cases without expecting or receiving compensation.

and

Lastly, it should be noted that members of the applicant are all individually responsible for the costs necessary to pay for any and all equipment and uniforms that they may need to fulfill their duties to the sheriff’s department and any necessary equipment needed for their safety.

imageAs I read this, the Cold Case Posse represented to the IRS that it wouldn’t have any expenses. That reading is confirmed by explicit expense estimates on their Form 1023 Application for Exemption for tax years 2007, 2008 and 2009: $0. They also specifically state that no one with the Posse would receive compensation. That immediately raises a question for me because for each of those tax years, the CCP estimated revenue of $6,500 from “membership fees.” Why did they estimate $19,500 in revenue for the three years, but no expenses? What were they going to do with that money? If the IRS wondered the same thing, they approved the Application anyway.2

Part of classifying an organization involves its sources of funding. In 2007 all the funding was projected as coming from membership fees. Is that still true today? We simply do not know how much of their revenue today comes from membership fees and how much from the Sheriff’s Office (such as county cars, gas cards and deputy trips to Hawaii) and how much from non-member donations.

In 2007 no expenses were projected. Today there are least hints of expenses. Republic Media outlet AZCentral.com reported a year and a half ago (May 22, 2012):

The cold-case posse has spent about $40,000 on the investigation so far, according to the Sheriff’s Office.3

That might include the cost of sending a deputy with Mike Zullo to Hawaii, but not Zullo’s several lobbying trips this past year nor his three-week adventure “out west” this past month. It wouldn’t have included fees paid to Reed Hayes. The number, whatever it is, must be significantly larger today.

Things have materially changed since the Cold Case Posse’s charge to assist the Maricopa County Sheriff’s office on unsolved homicides with volunteers who pay their own way. Now it’s an expensive donation-driven investigation of President Obama’s identity documents, which is neither a homicide, nor any case in Maricopa County.

I wonder if the IRS would classify today’s Cold Case Posse the same way it did in 2007? I hope not.

Related article:


1Some other Maricopa County Sheriff’s Posses do file IRS Form 990.

I use the word “hypothetically” because of the odd language in the narrative:

Chapter 501 (C)(3) states that an organization may request an exemption from federal income tax if it is organized as a separate entity of the governmental unit that created it.

The statement is true, but it says nothing about the Maricopa County Sheriff’s Cold Case Posse, Inc., although the careless reader might get that impression. The Cold Case Posse was chartered by the Sheriff’s Office, but they didn’t create the corporation that was seeking tax exemption. It was created by private citizens, and no one in their official capacity with the Sheriff’s Office signed the Articles of Incorporation.

2There are a few other curious things on the CCP Form 1023 Application. For example, Box XI (2) should have been checked, but it wasn’t.

3The Sheriff’s Office wrote to me that they had no financial records on the Cold Case Posse, who operate independently. That seems at odds with the Office being able to provide expense information to the Arizona Republic.

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21 Responses to Forensic accounting of the Cold Case Posse

  1. avatar
    Rennie November 26, 2013 at 3:18 pm #

    “The number, whatever it is, must be significantly larger today.”

    …”Millions” perhaps?

  2. avatar
    Keith November 26, 2013 at 4:55 pm #

    It just may be that the IRS is actually onto it…

    ‘Dark Money’ Nonprofit Political Spending Restricted In Proposed IRS Rules

  3. avatar
    Slartibartfast November 26, 2013 at 5:19 pm #

    You know, it must really suck to be a rank and file birther and never experience what it is like when someone actually delivers on a promise.

    Thanks Doc!

  4. avatar
    CarlOrcas November 26, 2013 at 7:57 pm #

    Nice job, Doc!

    If someone at the IRS had checked the other posses and seen how they were organized and classified they wouldn’t have done it the way they did with Zullo’s.

    Question is…..did Zullo check the other posses and decide he really didn’t want to divulge financial information so he skated by all those questions in the 1023 and decided to take his chances and left it up to the IRS to decide?

    Suspicious minds want to know.

  5. avatar
    Dr. Conspiracy November 26, 2013 at 8:06 pm #

    The wording is curious:

    “Chapter 501 (C)(3) states that an organization may request an exemption from federal income tax if it is organized as a separate entity of the governmental unit that created it.”

    That leaves the impression that the CCP was created by an entity of government, but avoids actually saying it. In fact, regardless of the CCP’s charter by Sheriff Arpaio, the Maricopa County Sheriff’s Cold Case Posse, Inc. was incorporated by private citizens.

    CarlOrcas: Suspicious minds want to know.

  6. avatar
    CarlOrcas November 26, 2013 at 8:32 pm #

    Dr. Conspiracy:
    The wording is curious:

    “Chapter 501 (C)(3) states that an organization may request an exemption from federal income tax if it is organized as a separate entity of the governmental unit that created it.”

    That leaves the impression that the CCP was created by an entity of government, but avoids actually saying it. In fact, regardless of the CCP’s charter by Sheriff Arpaio, the Maricopa County Sheriff’s Cold Case Posse, Inc. was incorporated by private citizens.

    None of the posses are part of the sheriff’s office. Most are quite specific about it. Zullo, as usual, is evasive. On the other hand Arpaio seemed quite clear when asked.

    It is my recollection that the exemption from filing a 990 applies if the organization’s finances are incorporated in those of the public agency. The MCSO’s response puts that one to rest so I don’t see how the cold case posse can avoid disclosing its finances and filing.

  7. avatar
    Dr. Conspiracy November 26, 2013 at 9:08 pm #

    The CCP is exempt from filing Form 990 because the IRS told them so. I tend to blame the IRS for making a mistake in exempting them based on insufficient information. But they are probably under-staffed and can’t police every small organization as much as one might want. That’s what the referral process is for, for folks who think there’s a problem to report it.

    CarlOrcas: It is my recollection that the exemption from filing a 990 applies if the organization’s finances are incorporated in those of the public agency. The MCSO’s response puts that one to rest so I don’t see how the cold case posse can avoid disclosing its finances and filing.

  8. avatar
    CarlOrcas November 26, 2013 at 9:11 pm #

    Dr. Conspiracy:
    The CCP is exempt from filing Form 990 because the IRS told them so. I tend to blame the IRS for making a mistake in exempting them based on insufficient information. But they are probably under-staffed and can’t police every small organization as much as one might want. That’s what the referral process is for, for folks who think there’s a problem to report it.

    I agree on all counts. It will be interesting to see where it goes from here.

  9. avatar
    Reality Check November 26, 2013 at 9:25 pm #

    IRS form 13909 is the appropriate form for reporting misconduct by exempt organizations. A reward available in certain circumstances.

  10. avatar
    Dr. Conspiracy November 26, 2013 at 10:49 pm #

    You mean like this one:

    http://www.scribd.com/doc/98130951/2012-06-24-IRS-Referral-Re-MCSO-CCP-Redacted

    Reality Check:
    IRS form 13909 is the appropriate form for reporting misconduct by exempt organizations. A reward available in certain circumstances.

  11. avatar
    CarlOrcas November 26, 2013 at 11:14 pm #

    Dr. Conspiracy:
    You mean like this one:

    http://www.scribd.com/doc/98130951/2012-06-24-IRS-Referral-Re-MCSO-CCP-Redacted

    That should do it!!

  12. avatar
    Curious George November 26, 2013 at 11:51 pm #

    Keith: It just may be that the IRS is actually onto it…‘Dark Money’ Nonprofit Political Spending Restricted In Proposed IRS Rules

    “In general, the proposed new rules would classify more campaign-related actions as political and therefore not part of groups’ tax-exempt activities. That has been interpreted by lawyers for 501(c)(4) organizations to mean that they can’t spend more than 50% of their funding on campaigns.
    But the IRS hasn’t—until now—specified what types of spending are considering political or nonpolitical. That has given the people who run 501(c)(4) groups tremendous flexibility in their spending.”

    The CCCP, however, is a 501 (C) 3.

  13. avatar
    Reality Check November 27, 2013 at 12:29 am #

    Dr. Conspiracy:
    You mean like this one:

    http://www.scribd.com/doc/98130951/2012-06-24-IRS-Referral-Re-MCSO-CCP-Redacted

    Yes, I think one could update that complaint based on what we know now about the CCP lack of accountability.

  14. avatar
    RanTalbott November 27, 2013 at 5:04 am #

    Dr. Conspiracy: There are a few other curious things on the CCP Form 1023 Application. For example, Box XI (2) should have been checked, but it wasn’t.

    Was there a number “9” in pencil next to it? If not, it could be “Irrefutable!! Proof!! of Forgery!!”

  15. avatar
    Keith November 27, 2013 at 5:21 am #

    Curious George: “In general, the proposed new rules would classify more campaign-related actions as political and therefore not part of groups’ tax-exempt activities. That has been interpreted by lawyers for 501(c)(4) organizations to mean that they can’t spend more than 50% of their funding on campaigns.
    But the IRS hasn’t—until now—specified what types of spending are considering political or nonpolitical. That has given the people who run 501(c)(4) groups tremendous flexibility in their spending.”

    The CCCP, however,is a 501 (C) 3.

    Yes, I noticed that after I posted. Pretty dumb on my part.

    Never-the-less, I figure that the CCCP is a just another chip on the dark money laundering disinformation vortex. When they follow the money they are going to find it ending up in pockets of those folks at the bottom of the food chain, and the CCCP is among the bottomest.

  16. avatar
    Curious George November 27, 2013 at 8:53 am #

    Keith: Yes, I noticed that after I posted. Pretty dumb on my part. Never-the-less, I figure that the CCCP is a just another chip on the dark money laundering disinformation vortex. When they follow the money they are going to find it ending up in pockets of those folks at the bottom of the food chain, and the CCCP is among the bottomest.

    I figured you missed this so I went ahead and posted it. But you’re right. They’re operating in their own little vacuum seemingly accountable only to themselves.

    And this really seems odd: “the CCP estimated revenue of $6,500 from “membership fees.” Since when do volunteers pay $6,500 in membership fees? The WND reported that the CCCP “elite team” had 5 members, that comes out to a $1,300.00 membership fee per person, per year to work for free? Does anyone else see that this just doesn’t make any sense whatsoever?

  17. avatar
    CarlOrcas November 27, 2013 at 10:21 am #

    Curious George: And this really seems odd: “the CCP estimated revenue of $6,500 from “membership fees.” Since when do volunteers pay $6,500 in membership fees? The WND reported that the CCCP “elite team” had 5 members, that comes out to a $1,300.00 membership fee per person, per year to work for free? Does anyone else see that this just doesn’t make any sense whatsoever?

    The figures in the 1023 are forward looking estimates for the first three years of operations. Frankly it looks like someone just pulled the figure out of the air…..or somewhere else.

    If you look at the websites and 990’s for other posses you will see that most of them mention membership fees or dues.

    The real mystery is how much the Cold Case Posse has received in donations and what they have done with them…..besides send Zullo to Hawaii.

  18. avatar
    Jim November 27, 2013 at 10:32 am #

    Curious George: Does anyone else see that this just doesn’t make any sense whatsoever?

    Yeah, but you get to play fake deputy and wear paper badges and get called “Commander” and “Lieutenant” and everything! Perfect for any 10-year-old police officer wanna-be…or used car salesman who couldn’t cut it as a cop! Of course, the donation just goes into Sheriff Joe’s pocket (errr, re-election fund) for the privilege.

  19. avatar
    RanTalbott November 27, 2013 at 1:24 pm #

    Curious George: Since when do volunteers pay $6,500 in membership fees?

    Boy Scouts, Shriners, Lions Club, etc. Lots of groups that do volunteer work as all/part of their purpose charge dues.

    The WND reported that the CCCP “elite team” had 5 members, that comes out to a $1,300.00 membership fee per person, per year to work for free?

    The crew of the L33t Performing Seal Team 5 were allegedly hand-picked from a much larger membership. The number “3000” was tossed around, but I believe that’s the sum of all of Arpaio’s many Brave and Dedicated Posses™.

  20. avatar
    CarlOrcas November 27, 2013 at 1:41 pm #

    RanTalbott: The number “3000″ was tossed around, but I believe that’s the sum of all of Arpaio’s many Brave and Dedicated Posses™.

    I believe you’re correct.

    Just for the record I’d like to note that most of the posses really do good work. In particular the dive and search & rescue posses are highly skilled and very effective.

    Some of the other community based posses – like those in the retirement communities in the northwest and southeast Valley – are also quite effective.

  21. avatar
    RanTalbott November 27, 2013 at 2:59 pm #

    CarlOrcas: Just for the record I’d like to note that most of the posses really do good work

    A good point: it’s unfair to generalize just because the only ones most of us hear about are Performing Seal Team 5 and the one that volunteers to spend its Saturday nights “roustin’ Messkins”.