"They can't collect legal taxes from illegal money."
Or so Al Capone infamously alleged. Despite his bravado, on this day in 1931, Capone was sentenced to prison for tax evasion.
Alphonse Gabriel Capone, better known as Al Capone, was born in Brooklyn, New York in 1899 to Italian immigrants. His parents held working class jobs, his father, a barber, and his mother, a seamstress. Capone, however, had trouble fitting in and he was expelled from school at age 14 for hitting a teacher.
After he left school, Capone tried his hand at odd jobs, but nothing stuck. Capone eventually turned to a friend, Johnny "The Fox" Torrio. Torrio was just getting started building an empire but would go on to be called "the father of American gangsterdom" by Elmer Irey, the first Chief of the Internal Revenue Service (IRS) Enforcement Branch.
Torrio introduced Capone to Frankie Yale, who owned brothels which were havens for all kinds of illegal activities, including gambling. Capone got a job as a bouncer and bartender at one of the brothels and while at work, Capone, who wasn't known for being even-tempered, got into a fight. He was slashed across his left cheek three times with a knife, leaving a permanent scar and earning the nickname, "Scarface." Supposedly, the fight was over a girl.
At age 18, Capone met and married Mae Coughlin. That same month, Mae gave birth to the couple's first child, a son, Albert Francis "Sonny" Capone. The birth of his son gave Capone pause - briefly. Capone moved his family to Baltimore with intentions of making an honest living as a bookkeeper. But he couldn't resist the allure of the gangster life, and when Torrio asked Capone to move to Chicago and help him run his mob empire, it was an offer Capone couldn't refuse. Prohibition was in full swing, and the men saw an opportunity to exploit the demand for booze, gambling, and women.
In 1925, Torrio barely survived an assassination attempt by rival mobsters Hymie "The Pole" Weiss, Vincent "The Schemer" Drucci, and George "Bugs" Moran. After spending three weeks in the hospital, and even more time in prison, Torrio wanted out for good. He decided to leave Chicago, handing over control of his mob empire to Capone.
Capone expanded Torrio's business in Chicago and made lots of money doing it. By the mid-1920s, Capone was thought to take home nearly $60 million annually ($974 million in today's dollars) and his wealth continued to grow, reportedly topping $100 million ($1.6 billion in today's dollars). The feds estimate that half of that money came from bootlegging; a quarter from gambling; and the rest from drugs and prostitution.
As Capone's empire grew, so did his penchant for violence. The bodies piled up as gangs fought for control in Chicago and most had Capone's fingerprints all over them. The feds, however, couldn't make charges of violence stick against Capone. In 1927, the feds changed tactics and indicted Capone, his brother, and several colleagues on charges of violating Prohibition. Capone walked, again.
But something else happened in 1927 - miles away from Chicago - that would prove to be a turning point. On May 16, 1927, the U.S. Supreme Court ruled in U.S. v. Sullivan that "[g]ains from illicit traffic in liquor are subject to the income tax would be taxable by the feds." (274 U.S. 259)
(Fun footnote: The Justices noted in Sullivan that, "It is urged that if a return were made the defendant would be entitled to deduct illegal expenses such as bribery. This by no means follows but it will be time enough to consider the question when a taxpayer has the temerity to raise it.")
Back in Chicago, Sullivan went largely unnoticed - and the violence continued. In 1928, the Secretary of the Treasury summoned Irey and told him to "get Capone." Irey was said to have replied, "We'll get right on it."
Other law enforcement was chasing Capone with little success. There were 367 murders in Chicago in 1928, nearly twice the number reported in New York City, despite the fact that the population of the Big Apple was more than twice of that of Chicago during that period. Much of the violence was attributed to Capone and his rivals.
The lawlessness culminated on February 14, 1929, when gunmen allegedly hired by Capone posed as police officers before executing members of George "Bugs" Moran's gang. Capone was in Miami at the time of the shootings but was immediately blamed for what came to be known as the St. Valentine's Day Massacre. No one was ever prosecuted. After the shootings, the FBI dubbed Capone "Public Enemy Number One," a label Capone reportedly hated.
Capone felt untouchable. He failed to answer a subpoena to appear before a federal grand jury, claiming he was ill. He was arrested on contempt charges after prosecutors produced evidence that he had not been too ill to gamble at the tracks or cruise in the Bahamas. He was released on bond but was re-arrested in Philadelphia a short time later on concealed weapons charges; he was sentenced in record time. However, prison wasn't so bad for the mob boss: he served time at Eastern State Penitentiary, reportedly in luxury with flowers, French furniture, rugs, and a Victrola radio in his cell.
During this time, the feds were quietly building a case against Capone: despite his lavish lifestyle, Capone never filed an income tax return, claiming that he had no taxable income. Using forensic accounting, Special Agent Frank Wilson and IRS "T-Men" put together a case against Capone for failing to report millions of dollars of ill-gotten gains. The T-Men were experts at following the money and it paid off: Capone was indicted on 22 counts of federal income tax evasion.
Capone boasted that he had reached a plea agreement which would have sent him to jail for just over two years. The judge, however, refused the deal, and the case went to trial. Capone was found guilty and sentenced to 11 years in prison. He was also fined $50,000 ($811,904.61 in today's dollars), charged court costs, and ordered to pay back taxes of $215,000 (now, $3,491,189.80).
Capone's first prison stop was in Atlanta. Initially, Capone used bribery to get what he wanted, just as he had done in Philadelphia, this time reportedly gathering a mirror, typewriter, rugs, and a set of encyclopedias. When he was found out, he was punished by being relocated - to Alcatraz.
Alcatraz proved to be Capone's undoing. There, far from his family and other influences, Capone remarked to the warden, "It looks like Alcatraz has got me licked."
Capone spent more than four years at Alacatraz. There, his health declined. He had contracted syphilis years before, and it worsened, eventually leading to "intermittent mental disturbances."
Capone was relocated again in 1939 - this time to a mental hospital to serve out the remainder of his sentence. His family eventually moved him to Florida where they sought treatment. At the time, his physician determined that he had deteriorated to the point where he had the mental capacity of a 12-year-old. Capone - once the most feared man in America - died on January 25, 1947, at the age of 48.
