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To catch a thief

By Pete Williams, NBC News Justice correspondent

Editor's note: Pete Williams's report will air on tonight's broadcast.

"Only an accountant could catch Al Capone."

That's the headline on a poster distributed by the Internal Revenue Service, hoping to persuade potential recruits that life as a tax investigator won't be just columns of figures and Schedule A. Though many people think it was Elliot Ness, a fed from the forerunner of ATF, or the FBI that brought down Scarface, that honor belongs to the IRS.

Image: IRS adOn Nightly News tonight, we get a first look at secret IRS files, now being revealed nearly 70 years after the man declared Public Enemy Number One was convicted on tax charges.
The documents contain the candid assessments of the agents assigned to the case, who faced the daunting prospect of bringing down the king of the Chicago mobs, a task at which many had failed.

It was clear the Chicago cops were not equal to the mission. In one memo to headquarters, an IRS supervisor writes that Capone was, "free from arrest and prosecution by the local police, due, no doubt to his lavish spending of money and giving bribes. Some time ago, Capone was arrested on a vagrancy charge, and the states attorney [sic] had to dismiss the case for the reason that no policeman could be found in Chicago who knew Al Capone!"

A team of IRS investigators, dispatched from Washington at the direct urging of President Herbert Hoover, discovered just how difficult this case would be.

Image: Al Capone"Al Capone never had a bank account and only one occasion could it be found where he ever endorsed a check," an IRS man wrote. So how to prove he was evading taxes if the agents couldn't show how much he was making?

They quietly began interrogating the bookkeepers and cashiers who worked at the bootleg joints, gambling halls, and brothels that were the sources of Capone's income. To protect cooperating witnesses from being killed by Capone's mob, many were sent out of town -- one even to South America. Investigators also built a detailed picture of Capone's spending habits, from his custom made silk shirts to his vacation house in Florida.

The strategy worked. Capone was sentenced to 11 years in prison. One unexpected benefit of the IRS success was noted in the files: "Many delinquent taxpayers, including those engaged in legitimate business ... immediately filed delinquent returns," an IRS supervisor wrote, doubling the amount collected in Chicago from the year before.