In the 1920s, during the prohibition era, successful prosecution of prominent organized crime bosses was nearly impossible due to witness intimidation and the lack of written records. Mabel Walker Willebrandt, then an Assistant Attorney General in charge of enforcing the Volsted Act, recognized that these figures publicly led lavish lifestyles yet never filed tax returns, and thus might be prosecuted for this failure without requiring testimony about the specific crimes that enriched them. The first person prosecuted under this theory was Manley Sullivan, a South Carolina bootlegger. Sullivan's lawyers argued that filing a tax return on illegal income would amount to self-incrimination, and he was therefore protected by the Fifth Amendment. Sullivan was convicted in Federal court, But the Fourth Circuit Court of Appeals reversed, on Fifth Amendment grounds.
Decision
Justice Oliver Wendell Holmes Jr. wrote for the court. He noted that the Revenue Act of 1921 provided that gross income includes "gains, profits, and income derived from... the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever," and that while the 1913 version of law included the word "lawful" before "business," Congress had removed the word "lawful" in 1921. Holmes rejected the Fifth Amendment argument saying that if a defendant believed information required on the tax form would incriminate him, he could raise that issue on the form, but he could not simply refuse to file. Holmes dispatched another objection saying:
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.
Consequences
Many criminals have subsequently been prosecuted for tax evasion. In particular, Al Capone was convicted in 1931. To this very day, Publication 17 of the Internal Revenue Service notes that "ncome from illegal activities," including money from dealing illegal drugs or bribes received, must be included in the declaration of one's income.
