In fulfillment of the requirements for the subject

FORENSIC ACCOUNTING

RESEARCH
CASE 2 : AL CAPONE

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CASE 2: AL CAPONE

I. Summary of the Case

The People vs. Al Capone trial is a tax evasion trial. Alphonse Gabriel Capone was indicted
for one count and 22 counts of federal income-tax evasion for the years 1924 and 1925 to
1929, respectively. The complaint alleges that Capone failed to file tax returns from 1924
to 1929 and knowingly shirked exactly $215,080.48 in US taxes owed on an income of
$1,038,654.84.

The case of Capone is a difficult task to prove since he did not maintain a bank account;
no property under his name; never sign any checks or receipts and he paid cash for all his
transactions. On the other hand, Capone live a lavish lifestyle which could be an evidence
of substantial unreported income, therefore, the investigator compiled a list of Capone’s
expenditures from department store, jewelry store, car dealership, hotel records and other
establishments. In return, they discovered purchases of high-end furniture, custom-made
shirts, diamond-studded belt buckles, gold-plated dinner service, hotel suites, town cars
and limousines, and a house on Palm Island, Miami, Florida, with two new docks, a
boathouse, and an extra garage. They also tracked down telephone bills totaling $39,000
and evidence that he paid thousands to host a luxurious party on the night of the Dempsey-
Tunney heavyweight fight. Although the investigators were successful in tracking
Capone’s extravagant expenditures, they have difficulties in directly relating it to his
earnings that would prove the existence of his unreported taxable income.

A turning point to resolve the difficulties of the investigators arise when they had obtained
some reference of monthly income of a gambling hall from the three bound ledgers seized
in a raid on one of Capone's establishments in 1926. Although this wasn’t enough to
conclude that it went to Capone and his associates, a significant witness was located by
comparing the handwriting in the ledger with that on deposit slips from local banks. The
confirmation of the witness on the legitimacy of the ledgers brought light to the
investigation. The investigator had also collected sworn testimony from people involved in
the raid of the gambling hall in 1926, which had determined beyond any doubt that Capone
was the owner of the place.
 Defense attorneys tried to present Capone as a horse-racing addict who lost as much money
as his businesses earned during the years in question. Nevertheless, gambling losses are
only deductible against gambling winnings, so even if the defense testimony was accepted,
it would hardly have absolved Capone from his duty to pay taxes on the income from his
many businesses.

The jury found Capone not guilty of tax evasion in 1924, but guilty on the counts for 1925
through 1927, and guilty of failing to file returns for 1928 and 1929. Capone was found not
guilty on 17 remaining counts of tax evasion. The judge imposed sentences totaling 11
years on the various counts, with fines of $50,000 and court costs of $30,000—the strongest
penalties on a tax evader to that date.

II. Role of Forensic Accountant

The role of the forensic accountant in the litigation is to assist the trier of fact (a judge
and/or jury) in the understanding of the evidence or a fact in dispute by contributing their
specialized knowledge. In a tax disputes, a forensic accountant plays three key roles: fact
witness, consulting expert and testifying expert. Forensic accountant can be called to testify
as fact witness, they are expected to provide solely factual first-hand information about the
case, without expressing an opinion. The next role of forensic accountant can offer is
consulting expert where they give consulting services on attorney’s work by developing
strategy, reviewing documents and analyzing reports and providing assistance in resolving
issues. The consulting expert are advocate of their clients. Lastly, forensic accountant can
play the role as testifying expert or also called expert witnesses, they must appear before
the trier of fact either through testimony or in a form of deposition, to provide professional
opinion as an expert on the issue.

III. Resolution

In a tax disputes, having a forensic accountant to assist the attorneys of both prosecution
and defendant team, is a critical component in resolving the case. The work of forensic
accountant in a tax disputes extend beyond accounting numbers which include adequate
investigation and analysis of financial data, report writing, and the acquisition of
appropriate exhibits and documentary evidence that will aid in tax legal proceedings.
IV. References
1. https://en.wikipedia.org/wiki/Al_Capone
2. https://www.britannica.com/biography/Al-Capone
3. https://www.encyclopedia.com/law/law-magazines/al-capone-trial-1931
4. https://famous-trials.com/alcapone/1474-home
5. https://www.fbi.gov/history/famous-cases/al-capone
6. https://www.archives.gov/exhibits/american_originals/capone.html
7. https://themobmuseum.org/blog/capone-tax-evasion-trial-90-years-ago-the-t-men-
had-the-goods-on-mob-chief/
8. https://online.norwich.edu/academic-programs/resources/follow-money
9. https://digitalcommons.wku.edu/cgi/viewcontent.cgi?article=1930&context=stu_hon_
theses
10. https://law.jrank.org/pages/2901/Al-Capone-Trial-1931--Impossible-Bargain-with-
Federal-Court.html