Monday, May 18, 2009

ACSTO, HY Processing and Steve Yarbrough

Edit on 5/19 to add link to AZ Republic article at end of post...

The Republicans in the lege are rushing headlong toward a special session in order to "fix" AZ's unconstitutional school vouchers law.

They may be successful in this effort (they've got the votes to implement their ideology and a pliable governor on the ninth floor), but they may come to regret that rush, as it is causing people to look closely at the organizations that benefit from school voucher/tax credit funds...

David Safier has an excellent post up concerning some of the financial activities of Rep. Steve Yarbrough's real job as director of the Arizona Christian School Tuition Organization (ACSTO).

In it, he sheds some light on ACSTO's massive increase in "processing expenses" at the same time that Yarbrough incorporated "HY Processing, LLC" in October of 2005.

ACSTO's processing expenses went from $24K in 2005 to over $360K in 2006 and even higher in 2007.


Anyway, IRS has rules for 501c3 organizations covering this situation (I think this is relevant- I'm not a tax attorney) -

The organization must not be organized or operated for the benefit of private interests, and no part of a section 501(c)(3) organization's net earnings may inure to the benefit of any private shareholder or individual. If the organization engages in an excess benefit transaction with a person having substantial influence over the
organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.
That "excess benefit transaction" clause seems to be especially relevant. From the IRS's page regarding the subject -

An excess benefit transaction is a transaction in which an economic benefit is provided by an applicable tax-exempt organization, directly or indirectly, to or for the use of a disqualified person, and the value of the economic benefit provided by the organization exceeds the value of the consideration received by the organization.


In addition, if a supporting organization makes a grant, loan, payment of compensation, or similar payment to a substantial contributor of the organization, the arrangement is an excess benefit transaction. The entire amount of the payment is taxable as an excess benefit.
A quick check of Arizona Corporation Commission and AZ Secretary of State records show that both HY Processing LLC and ACSTO list almost the same address - 7517 S McClintock Dr. in Tempe , #107 for ACSTO and #109 for HY Processing.

Right now, I can't state unequivocally that HY Processing is being used to launder ACSTO monies into Yarbrough's personal accounts, but if Rep. Yarbrough's field of legal specialization isn't in criminal or tax law, he may want to consider putting both a criminal lawyer and a tax attorney on retainer.

Highly-skilled ones.

Kudos to David Safier for spotting the "processing" activity in ACSTO's paperwork - I've looked at the paperwork many times but never spotted that juicy tidbit.

Edit: on 5/19, the Arizona Republic ran an article on this very subject. In addition to the stuff in the Blog for AZ post and this post, it also covers how ACSTO paid almost $45K in rent to Yarbrough, who, as it turns out, owns the office building that houses both ACSTO and KY Processing.

Further along in the article, Yarbrough asserts that he isn't in violation of the state's ethics laws.

One of Yarbrough's friends should advise him that the IRS doesn't care about state ethics laws.

End edit...

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