By 1929, Al “Scarface” Capone had consolidated his position as chief crime lord of Chicago, earning some $60 million in annual earnings from bootlegging, gambling, prostitution and other illegal activities. When the United States Treasury began investigating Capone for income tax evasion around that time, Frank Wilson was one of several Internal Revenue Service agents given the difficult task of examining Capone’s financial and business dealings. Through diligent forensic accounting, Wilson’s team assembled enough evidence to indict Capone in June 1931; he was convicted that October after an internationally publicized trial and sentenced to 11 years in prison.
Capone’s Reign in Chicago
Passage of the 18th Amendment, or Prohibition, in 1920 ushered in a troubled era in the United States, during which organized crime gangs profited tremendously from the illegal manufacture and sale of alcohol (known as bootlegging). Alphonse Capone, born in Brooklyn, had become Chicago’s leading crime czar upon the retirement of his former boss, Johnny Torrio, after an assassination attempt in 1924. As of 1927, Capone’s personal wealth was estimated at nearly $100 million, and he was raking in some $60 million a year from bootlegging, speakeasies (illegal drinking establishments), gambling and prostitution.
Capone had a lock on Chicago thanks to his willingness to gun down his rivals, including, allegedly, the bloody massacre of several members of longtime enemy George “Bugs” Moran’s gang at a garage on Chicago’s North Side on St. Valentine’s Day in 1929. In the wake of the St. Valentine’s Day Massacre, which was generally blamed on Capone’s gang though no charges were ever brought, Capone was the nation’s most notorious gangster, branded “Public Enemy No. 1″ in the press and placed under scrutiny from authorities including the Federal Bureau of Investigation (FBI).
Income Tax Evasion
Though they arrested him several times on charges such as possession of concealed weapons and contempt of court, local and federal authorities were unable to make a strong enough case against him to prosecute any of his violent activities. Meanwhile, the U.S. Treasury Department had begun investigating Capone for a very different type of crime: income tax evasion. Frank Wilson, a special agent in the Intelligence Unit of the Internal Revenue Service (IRS), was one of those tasked with carrying out the investigation. In addition to investigating Capone, Wilson and his fellow agents also looked into the financial dealings of his associates, including his brother and principal lieutenant, Ralph Capone, Frank Nitti and Jake Gusik.
As could be expected of gangsters, all of these men kept little or no financial records and had no bank accounts in their own names. And witnesses were reluctant to talk, adding to the difficulty of uncovering evidence about their business dealings. Finally, after reviewing some 2 million documents, Wilson discovered several ledgers containing notations that allowed him to trace payments made to Capone that he had not reported as income. This breakthrough led, in June 1931, to Capone’s indictment on charges of federal income tax invasion. His trial received international attention, and on October 17 he was convicted and sentenced to 11 years in prison, in addition to $80,000 in fines and court costs. Capone served his time at the federal penitentiary at Atlanta, Georgia, and at Alcatraz before being released in 1939 into a Baltimore hospital; he died an ailing recluse on his Florida estate in 1947.
Capone’s conviction helped restore much-needed public confidence in American law enforcement, but also marked the beginning of an era in which the IRS became an increasingly large presence in the lives of American citizens. Many delinquent taxpayers filed income tax returns in the period immediately following his conviction.
The IRS Intelligence Unit became well known for its investigative skills, both in the Capone case and in the equally notorious “Lindbergh baby” kidnapping case in the early 1930s. Later, the unit expanded its operations to begin investigating tax evasion by business people, government officials and ordinary citizens in addition to criminals. In 1978, the Intelligence Unit changed its name to Criminal Investigation; its jurisdiction was also extended to include money laundering and currency violations as well as tax evasion.