This is part II in the series "Downfall of a Kingpin - 5 Mistakes Al Capone Made". Part I in this series can be found here: http://thetaxlawyer.com/tax-evasion/information/al-capone-conviction-tax...
#4 Capone caught the attention, and the ire, of people in high places.
Al Capone first appeared on the FBI’s radar due to his reluctance to appear before a federal grand jury subpoena in 1929. First, his lawyers submitted a physician’s affidavit which attested that Capone had been suffering from bronchial pneumonia in Miami, and was confined to bed. However, FBI agents obtained statements from witnesses that Capone had attended and appeared in good health at race tracks in the Miami area, a plane trip to Bimini, a cruise to Nassau, and an interview at the office of the Dade County Solicitor.
The St. Valentine's Day Massacre also set in motion urgent Government initiatives to bring down organized crime. Target #1 was Al Capone, for he was the ultimate symbol of corruption at that time. Perhaps inspired by the tale of of Robin Hood, Capone had helped many down and outs in Chicago, especially during the Great Depression. Paying for coal to heat the homes of the poor, bringing Christmas baskets, paying medical bills, and other personal favors were the norm for Capone. Since Capone had the fear and/or love of many common citizens, the corrupt Chicago police could not be counted on to produce competent witnesses and make charges stick. They would be paid off or threatened if they felt the inclination to testify. Capone's inner circle were well insulated.
Al Capone was a celebrity, no doubt about it. Herbert Hoover was annoyed at seeing the Capone name constantly in the headlines. Upon seeing Capone on the cover of TIME magazine, he is rumored to have exclaimed "Get that man Capone!” It was also rumored that the Government really went after Capone when Herbert Hoover was at a ballgame at the same time as Capone, and the people cheered for Al but not Hoover.
Perhaps more importantly, Capone clearly had earned the ire of Judge Wilkerson. In 1931, Al Capone pled guilty to tax evasion and prohibition charges. He then boasted to the press that he had struck a deal for a 2 ½ year sentence. To the shock and dismay of Capone and his lawyers, in open court Wilkerson stated that he, as the judge, was not bound by any plea deal. Further, he would not accept any plea. Capone would be going to trial.
In perhaps the most impressive and stunning move of the Capone trial, Wilkerson brilliantly neutralized Capone’s attempts to influence the jury. Wilkerson got a tip that the jury had been bribed and/or threatened by Capone’s men. On the morning the trial was to begin, Capone, accompanied by his bodyguard, smiled at jurors as he strolled into court. Judge Wilkerson took his seat at the bench and looked out over the packed courtroom. He called the bailiff to the bench. "Judge Edwards has another trial commencing today," he told the bailiff. "Go to his courtroom and bring me his entire panel of jurors; take my entire panel to Judge Edwards." (Source: Al Capone Trial (1931): An Account, by Douglas O. Linder (2011)).
#5 He hired the wrong attorneys for his case.
Of Capone’s innumerous crimes and mistakes, perhaps the error in judgment that was most crucial to his conviction was that he hired attorneys who were experts in criminal defense to represent him in his tax evasion case. Further, the man he did hire to be his tax attorney, Lawrence Mattingly, proved inadequate and made a costly blunder. What Capone needed was attorneys who were experts in tax evasion litigation. This seemingly small distinction might have made all the difference in the ultimate outcome.
Initially, Capone wasn’t overly concerned with the tax evasion charges, but eventually he realized that he was in bigger trouble than he had suspected. His lawyers were telling him that he would do time. Accordingly, in April 1930, Mattingly contacted the Treasury and expressed his client’s desire to meet with agents to settle his indebtedness with the government. At the Federal Building in Chicago, federal agents interviewed Capone, but the exchange was tense and there was little achieved. In September, Mattingly met with Frank Wilson of the IRS to discuss Capone's tax liability. Mattingly took a letter from his coat pocket and threw it over to Wilson, saying, “This is the best we can do. Mr. Capone is willing to pay the tax on these figures.” The so-called "Mattingly letter" conceded taxable income for the six disputed years ranging from $26,000 in 1924 to $100,000 in 1928 and 1929. Hence, without any investigation, the government had been given a letter from Capone’s proxy conceding his large taxable income for certain years.
Wilson filed the letter away. A year later, it became the trial's most contentious piece of evidence. On the second day of the trial, Judge Wilkerson overruled objections that a lawyer could not confess for his client. Saying that the lawyer’s letter had “spoken” for Capone and that anyone making a statement to the government did so at his own risk, Wilkerson ruled that the 1930 letter to federal authorities could be admitted into evidence.
However, perhaps the biggest mistake Capone’s legal team made was in hiring criminal lawyers with no experience in tax matters, namely Albert Fink and Thomas D. Nash. Nash was known to be a brilliant trial lawyer, but inexplicably was part of the blunder of the case. The ledgers upon which the government relied to demonstrate Capone’s income were inadmissible on statute of limitations grounds. However, Capone's lawyers failed to make this crucial objection, and the ledgers were entered into evidence as the crux of the prosecution’s case. The consensus was also that Fink had implemented an ineffective and irrelevant defense at trial which centered around Capone’s gambling losses. The thought was (presumably) that the narrative would win Capone sympathy with the jury, but this strategy fell flat in court.
Capone was convicted and, in November 1931, was sentenced to eleven years in federal prison, fined $50,000 plus $7,692 for court costs, and, in addition, was held liable for $215,000 plus interest due on his back taxes. Following his conviction, Capone hired new lawyers who 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 Capone had been convicted on charges relating to years that were actually outside the time limit for prosecution. However, it was once again too little, too late. With a bit of creative interpretation of the law, the appeal of both Capone's conviction and sentence were denied.
The Modern Day Re-Trial
A modern-day reenactment of the Capone tax evasion trial underscored the notion that if Capone had had a more comprehensive tax plan, and more competent tax professionals handling his case, the outcome would have likely been different.
In August, 1990, the American Bar association revisited his income tax trial with lawyers. By modern standards of law, he was found not guilty. His defense at trial centered on his gambling habits, which found him no sympathy from the jury. In the reenactment, however, his lawyers took a different strategy. They demanded that the prosecution satisfy its burden of proof by specifically showing that Capone received money, and more importantly that he knowingly did not pay his income tax. Capone probably didn't know that illegal income was taxable at the time.
It can hardly be disputed that Capone would have been better served by competent tax attorney professionals, with an in-depth understanding of the nuances of tax evasion. Recently, as in Capone’s time, the rules and strategies in this area of tax law have undergone a number of changes in the past few years, however this is an area of tax law that The Tax Lawyer - William D. Hartsock - has been working in since the 1980’s. Seeing how the new rules fit into broader trends is part of how he can help you understand and comply with an ever-changing body of law.
****Most of the information within this article is the IRs website page on the Al Capone case: https://www.fbi.gov/about-us/history/famous-cases/al-capone