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The IRS Criminal Investigators and Al

Capone - Celebrating 90 years

This IRS recruitment poster says it all - Only an accountant was able to catch the infamous
Alphonse Capone.
irs.gov
In March of 1931, Chicago gangster Al Capone, known equally for his racketeering as for his
elusiveness, was indicted by the IRS. Two days before the statute of limitations on the charges
against him would have expired, the infamous mobster met his match.
No, it wasnt Eliot Ness and his squad of Untouchables, it was Uncle Sam and the Department of
the Treasury.
When no other crimes could be pinned to Al Capone, the IRS obtained a conviction for tax
evasion. As the astonished Capone left the courthouse he said, "This is preposterous. You can't
tax illegal income!"
Yes we can Mr. Capone. The fact remains Income from whatever source derived (legal or
illegal) is taxable income.
Indeed, IRS publications even cite this anomalous directive. The 2011 Publication 17, Your
Federal Income Tax, has a subheading under the chapter for Other Income. There we find the
following:

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Income from illegal activities, such as money from dealing illegal drugs, must be included in
your income on Form 1040, line 21, or on Schedule C or Schedule C-EZ (Form 1040) if from
your self-employment activity.
I always question the obtuse ethics of one conducting unlawful activities and then coming to a
moral realization that they need to pay taxes on those same earnings. Sort of the adult version of
stealing ten pieces of candy and returning one.
Initially, Capone was indicted not only for income tax evasion, but for violations under the
Volstead Act, which established Prohibition under the Eighteenth Amendment. Capone pleaded
guilty to all charges, but later withdrew it changed his plea.
After a jury swap; it was discovered Capone attempted to bribe the jurors, Capone was found
guilty on five counts of tax evasion and failing to file tax returns. The charges against the
Volstead Act were dropped.
He was convicted later that year and spent 11 years in federal prison.
Had money laundering statutes been on the books in the 1930's, Capone would also have been
charged with that. However, since October 1986, with the passage of the Money Laundering
Control Act, organized crime members and many others have been charged and convicted of
both tax evasion and money laundering.
The division in charge of the investigation was the Intelligence Unit, the precursor to todays IRS
Criminal Investigation.
Elliot Ness is often credited with bringing Al Capone to justice. In 2008, however, the IRS was
finally able to release its files on the Capone investigation. The files prove conclusively that
Intelligence Unit Chief Elmer Irey, Supervisor Frank Wilson and Special Agent Mike Malone
were the real heroes who uncovered the evidence that put Capone in jail.
To highlight its 90th anniversary, the Criminal Investigation (CI) Leadership Team recently
reenacted a historic moment.
In 1931, IRS revenue agents and special agents, including Elmer Irey, then chief of the IRS
Intelligence Unit, posed for a photograph with President Herbert Hoover on the west lawn of the
White House. President Hoover had personally tasked Irey with 'bringing down' Al Capone, and
the photograph was taken shortly after Capone's conviction on income tax evasion.
On July 19 of this year, CI staged another photograph at the White House, albeit without
President Obama.
"In contrast to 1931, where the special agent workforce was comprised of all white males,
today's CI workforce reflects the diversity of the taxpayers we serve," observed Eileen Mayer,
chief, CI. "Our mission remains the same, but now anyone can aspire to become a special agent
or even chief of CI."

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The availability of historical federal records is highly unusual. However, according to the IRS,
The records of the criminal investigation of Al Capone... are of historical significance and of
interest to the public.
To that end, the IRS has made the historical documents relating to Al Capone available through
their web site.