The People vs Al Capone

The People vs. Al Capone
Full of betrayal, bribery, and bootleggers, explore the events leading up to the tax evasion trial that
brought down Al Capone on the 100th anniversary of Prohibition.
By: Albert Allen / January 15, 2020
One hundred years ago, the 18 th Amendment to the Constitution entered into force, prohibiting the
production, sale, and transportation of “intoxicating liquors” in the U.S.* With Prohibition came the rise of
bootlegging and other criminal enterprises. One of the most notable gures from this time was Al
"Scarface" Capone—who, along with his crime family, was brought down not for his numerous underlying
crimes (bootlegging, loan sharking, extortion, prostitution) but for tax evasion on the revenue generated
from those crimes.
The story behind the FBI bringing down the legendary Capone and the development of tax law is
fascinating, to say the least. Full of betrayal, bribery, and bootleggers, the events leading up to the trial are
worth exploring.
Generally, all income is taxable, even when it’s earned illegally
The fact that most income is taxable is widely known, but it may surprise some to learn that the IRS
expects taxpayers to report income they’ve earned from illegal activities. Even more surprising is to
imagine that one of the most notorious gangsters in American history was brought down by fairly dry and
tedious tax laws.

After the 16 th Amendment was ratied in 1913, Congress enacted the Revenue Act of 1913 stating that
gross income included “gains, prots, and income derived from the transaction of any lawful business
carried on for gain or prot, or gains or prots and income derived from any source whatever.” In this
context, the word “lawful” provided an argument that income gained from an unlawful business was not
gross income to be taxed. Congress addressed this issue in 1921 by dropping the word lawful from its
denition of gross income. By 1921, there was little doubt that income gained from illegal activities was
still subject to taxes. However, a challenge of this law occurred in 1927 that ended up paving the way to
taking down Al Capone.
A bootlegger goes to the Supreme Court
Al Capone was born in Brooklyn, New York in 1899 and quit school in the sixth grade to join a notorious
street gang headed by Capone’s mentor Johnny Torrio. Capone was successful in moving through the
ranks and eventually took over Torrio’s bootlegging operations in Chicago in 1925. Two years later, a
bootlegger in South Carolina would challenge the taxability of illegal income and set in motion the
eventual takedown of Capone.
In United States v. Sullivan**, a bootlegger out of South Carolina argued before the Supreme Court of the
United States that the Fifth Amendment of the Constitution protected him from ling a return to report
income from his illegal business. Per the Fifth Amendment, no person shall be compelled in any criminal
case to be a witness against himself. Sullivan argued that disclosing illegal income on his tax return
would be self-incriminating and thus would violate Sullivan’s constitutional right protected under the Fifth
Amendment.
In an opinion delivered by Justice Holmes, the Supreme Court ruled that applying the Fifth Amendment in
this way was pressing it too far. Justice Holmes went on to say that it would be an extreme, if not an
extravagant, application of the Fifth Amendment to say that it authorized a man to refuse to state the
amount of his income because it had been made in crime. Further, the Supreme Court concluded that
Sullivan “could not draw a conjurer’s circle around the whole matter by his own declaration that to write
any word upon the government blank would bring him into danger of the law.” In other words, taxpayers
can’t just claim that providing information will incriminate them and be done with the matter.
A Treasury Agent builds the case against Capone
The Supreme Court decision striking down the Fifth Amendment argument against reporting illegal
income on a tax return opened the door to use this procedure against the other bootleggers in the
country. After the Sullivan decision, President Herbert Hoover instructed the Secretary of the Treasury
that he wanted Capone in jail. Treasury Agent Frank Wilson was appointed to the job of building the case
of tax evasion against Capone. Capone hadn’t claimed any income from his business dealings on his
returns for 1924 through 1929 and insisted he earned little or no income, while his crime syndicate
grossed an estimated $105 million per year (not adjusted for ination).
While Agent Wilson was building his tax evasion case out of the Chicago Post Oce Building, the Justice
Department assigned a small team of Prohibition agents to target illegal breweries. This small team led
by Eliot Ness became famous for its efforts and would be later known as “The Untouchables,” with a

feature lm of the same name released in 1987. While Eliot Ness and his team brought about nancial
damage to Capone’s operations and around 5,000 indictments under the Volstead Act against Capone in
June 1931, it was the tax case Agent Wilson built that ultimately brought down Capone.
Wilson rst went after associates of Capone. One associate, who became one of the key informants, was
“Easy Eddie” O’Hare.*** Easy Eddie ran dog-racing tracks for Capone in Chicago as well as Florida and
Massachusetts. Another informant was Leslie Shumway, the author of seized ledgers of one of Capone’s
gambling establishments. And importantly, Fred Reis testied, after four days in solitary connement, that
Reis purchased numerous cashier checks and turned them over to Capone’s employees and that these
checks represented Capone’s net prots at his Cicero gambling hall.
The trial of the century
With the witnesses’ testimony in-hand, Agent Wilson told U.S. Attorney George Johnson that they were
ready to move forward with charges against Capone. After federal judge Hon. James Wilkerson denied a
plea deal, the case went to trial in 1929. Even before the trial began, Capone tried to swing the odds in his
favor. The informant O’Hare passed information along to Wilson that Capone had a list of prospective
jurors and was already bribing them. Using this information, Judge Wilkerson switched out the entire
panel of jurors with the jurors from a different trial on the morning of the rst day of the Capone’s trial.
Besides bribing the jury, it was also suspected that Capone brought his personal bodyguard, Philip
D’Andrea, to the courtroom to sit behind him and intimidate witnesses as they took the stand. At the
beginning of the trial, Judge Wilkerson ordered no guns in the courtroom. Under this order, special agents
escorted D’Andrea out of the courtroom during the trial and searched him. They found a loaded revolver
and extra cartridges, and D’Andrea was immediately found in contempt of court and placed in jail for the
remainder of the Capone trial.
While Capone had tried his best to sway the jury through any means necessary, it was not enough in the
end. The government’s evidence of Capone’s illegal income that was not stated on his income tax returns
was overwhelming. The jury found Capone guilty of ve of the 23 charges against him and Judge
Wilkerson sentenced Capone to 11 years, the longest term ever handed down for tax evasion at that
point. On his way out of the courtroom, Capone shouted, "I'm not through ghting yet!" But he was
nished--Capone’s appeals were unsuccessful, he was in prison for eight years before his release in 1939,
and died of a stroke in Palm Island, Florida in 1947.
Conclusion: If crime pays, report the income or face evasion
charges
After Capone’s trial, tax evasion became a tried and true method to take down other notorious gangsters.
Besides providing the government a safe way to put the nation’s most dangerous criminals behind bars,
Capone’s trial brought about another interesting side effect. In 1931, the IRS collected about $1.1 million
more in collections from delinquent returns as compared to 1930, due, in part, to the outcome of the
Capone trial.
* The 18 th Amendment was repealed in 1933.
** U.S. v. Sullivan, 274 U.S 259 (1927)
*** Eddie O’Hare was eventually killed by two gunmen in a passing car years later. His son, Edward, was

given the Congressional Medal of Honor for his bravery as a naval aviator in World War II. Chicago’s
O’Hare International Airport is named in his honor.
Albert Allen
Albert Allen is a tax research analyst at The Tax Institute. Albert coordinates
a research team focused on real property and cancellation of debt issues.