information:extraction
Tax evasion

Assistant Attorney General Mabel Walker Willebrandt is said to have originated the tactic of charging obviously wealthy crime figures with federal tax evasion on the basis of their luxurious lifestyles. In 1927, the Supreme Court ruled in United States v. Sullivan that the approach was legally sound: illegally earned income was subject to income tax.

The key to Capone's conviction on tax charges was not his spending, but proving his income, and the most valuable evidence in that regard originated in his offer to pay tax. Ralph, his brother and a gangster in his own right, was tried for tax evasion in 1930. Ralph spent the next 18 months in prison after being convicted in a two-week trial over which Wilkerson presided.

Seeking to avoid the same fate, Al Capone ordered his lawyer to regularize his tax position, and although it was not done, his lawyer made crucial admissions when stating the income that Capone was willing to pay tax on for various years, admitting income of $100,000 for 1928 and 1929, for instance. Hence, without any investigation, the government had been given a letter from a lawyer acting for Capone conceding his large taxable income for certain years he had paid no tax on. On March 13, 1931, Capone was charged with income tax evasion for 1924, in a secret grand jury. On June 5, 1931, Capone was indicted by a federal grand jury on 22 counts of income tax evasion from 1925 through 1929; he was released on $50,000 bail. Capone was then indicted on 5,000 violations of the Volstead Act (Prohibition laws).

On June 16, 1931, at the Chicago Federal Building in the courtroom of Wilkerson, Capone pleaded guilty to income tax evasion and the 5,000 Volstead Act violations as part of a 2 + 1 ⁄ 2 -year prison sentence plea bargain. However, on July 30, 1931, Wilkerson refused to honor the plea bargain, and Capone's counsel rescinded the guilty pleas. On the second day of the trial, Wilkerson deemed that the 1930 letter to federal authorities could be admitted into evidence, overruling objections that a lawyer could not confess for his client. Wilkerson later tried Capone only on the income tax evasion charges as he determined they took precedence over the Volstead Act charges.

Much was later made of other evidence, such as witnesses and ledgers, but these strongly implied Capone's control rather than stating it. Capone's lawyers, who had relied on the plea bargain Wilkerson refused to honor, therefore had mere hours to prepare for the trial, ran a weak defense focused on claiming that essentially all his income was lost to gambling. This would have been irrelevant regardless, since gambling losses can only be subtracted from gambling winnings, but it was further undercut by Capone's expenses, which were well beyond what his claimed income could support; Wilkerson allowed Capone's spending to be presented at very great length.

The government charged Capone with evasion of $215,000 in taxes on a total income of $1,038,654, during the five-year period. Capone was convicted on five counts of income tax evasion on October 17, 1931, and was sentenced a week later to 11 years in federal prison, fined $50,000 plus $7,692 for court costs, and was held liable for $215,000 plus interest due on his back taxes. The contempt of court sentence was served concurrently. New lawyers hired to represent Capone were Washington-based tax experts. They filed a writ of habeas corpus based on a Supreme Court ruling that tax evasion was not fraud, which apparently meant that Capone had been convicted on charges relating to years that were actually outside the time limit for prosecution. However, a judge interpreted the law so that the time that Capone had spent in Miami was subtracted from the age of the offences, thereby denying the appeal of both Capone's conviction and sentence.