Early in the Alcatraz Cellhouse Audio Tour, my wife pointed out one of the pictures in D-Block: right next to people imprisoned for narcotics offenses, conspiracy to kidnap, and murder was Mickey Cohen, in Alcatraz for tax evasion. IMG_4029

Tax evasion! Alcatraz was a pretty harsh punishment for not paying your taxes. Unless, of course, you weren’t really sent to Alcatraz for not paying taxes, Which, of course, Cohen wasn’t. Neither was the inmate at the other side of the picture: Al Capone.  

FaIMG_4030mously, the federal government couldn’t convict Al Capone for the crimes he’s famous for, and, instead, used the fact that he’d never filed a tax return to put him in prison.

Like pretty much everybody, I was familiar with the fact that the government couldn’t convict Capone of mob-related activities, and, instead, had to rely on taxes. But I’d never read the verdict or the decision in his appeal.

In his appeal, Capone claimed that he was a gambler by profession, and that he’d not filed his tax returns for taxable years 1922-1925 because he believed that illegal income was not taxable.

He admitted to gains of $75,000 over the four years in question, and a tax liability of $4,082.18 for those same four years. He then made an offer in compromise, arguing that he lacked the ability to pay, and proposing to pay $1,000 in full satisfaction of his outstanding tax liabilities.

Unfortunately for Capone, the government was able to demonstrate that over a five-year period, he deposited more than $1.8 million in various bank accounts under various pseudonyms. Count two of the second indictment essentially charged Capone with concealing assets in making an offer in compromise, in violation of 26 U.S.C.§ 2616.

However, Capone made his offer in compromise on October 4, 1927, while section 2616 wasn’t enacted until May 29, 1928. The government argued that it didn’t matter, because the offer was continuing until rejected by the government in October 1928.

The court decided that the criminal statute was prospective only, and that the truthfulness of the offer in compromise was only relevant on the date the offer was made. As a result, the appeals court reversed Capone’s conviction with respect to the offer in compromise. (It upheld his other convictions, of course, and Capone ended up in Alcatraz notwithstanding the reversal of his offer in compromise conviction.)

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