Under financial pressure from the Internal Revenue Service (IRS) for back taxes, he disbanded the second wave of the original Ku Klux Klan in 1944.

He joined the local Ku Klux Klan chapter in Vigo County, Indiana, and in sixteen years moved through the ranks up to the Imperial Wizard.

[1] Imperial Wizard Hiram Wesley Evans resigned on June 10, 1939,[3] and Colescott became the Ku Klux Klan's new leader.

Chester L. Quarles, a professor of criminal justice at the University of Mississippi, points that Colescott had considerable experience as a Klan recruiter across several states.

[3][5] The decline continued during World War II, when most of the Americans began being preoccupied with the issues of national security and Ku Klux Klan "lost social influence, money and political support".

[5] During the hearing, committee members John E. Rankin (D-MS) and Joe Starnes (D-AL) defended Ku Klux Klan as an "American institution".

Its decisions disbanded the central Klan organization, "repealed all degrees, vacated all offices, voided all charters, and relieved every Klansman of any obligation whatever".

Most of the local chapters in the South, or klaverns, continued to operate, thus staging the Klan's comeback and third re-organization[12] under the leadership of Samuel Green, an Atlanta obstetrician, in 1946.

[13] Already in November 1944, anthropologist H. Scudder Mekeel had expressed concerns that the end of World War II could be followed by a "revival in full force" of the Klan.

He remained bitter about his forced retirement, and blamed "nigger-lover" Franklin D. Roosevelt and "that Jew" Henry Morgenthau Jr. for the downfall of the Klan.