Opinion ID: 1119219
Heading Depth: 3
Heading Rank: 2

Heading: Impact of Income Taxes on the Damage Award

Text: The question we now turn to is whether the failure to give an instruction regarding the impact of federal taxes on an award of damages constituted error. The trial court refused a jury instruction proposed by Drott which stated: Your award of damages in this case, if any, will not be subject to any income taxes and you should not consider such taxes in fixing the amount of your award. This issue is one of first impression in Alaska. Drott urges us to adopt the approach taken in Norfolk & Western Railway Co. v. Liepelt, 444 U.S. 490, 100 S.Ct. 755, 62 L.Ed.2d 689, reh'g denied, 445 U.S. 972, 100 S.Ct. 1667, 64 L.Ed.2d 250 (1980). In Norfolk, the United States Supreme Court held that it was reversible error to refuse to instruct the jury that the award of damages would not be subject to income taxation. Although the weight of authority does not require an instruction on federal taxes, persuasive arguments exist on both sides of the question. See Barnette v. Doyle, 622 P.2d 1349, 1366 (Wyo. 1981); Annot., 63 A.L.R.2d 1393, 1408 (1959). On the one hand, such an instruction serves to prevent the jury from improperly increasing the award to protect the plaintiff from the impact of income taxes. Norfolk, 444 U.S. at 498, 100 S.Ct. at 759, 62 L.Ed.2d at 696; Tenore v. Nu Car Carriers, Inc., 67 N.J. 466, 341 A.2d 613, 629 (N.J. 1975). On the other hand, a jury may do just the opposite, and mitigate the award by reason of the income tax exemption. Raines v. New York Central Railroad Co., 51 Ill.2d 428, 283 N.E.2d 230, 232 (Ill. 1972) cert. denied 409 U.S. 983, 93 S.Ct. 322, 34 L.Ed.2d 247 (1972). Another reason for not requiring an instruction on federal taxes is the belief that a jury should not receive such an instruction when it is not also instructed with respect to attorney's fees, the costs incurred in preparing a case, or the various types of insurance that may be involved. Barnette, 622 P.2d at 1367. We are persuaded by the reasoning of Judge Friendly in McWeeney v. New York, New Haven and Hartford Railroad Co., 282 F.2d 34, 39 (2d Cir.1960), that, [b]efore an appellate court should hold that failure to give such a cautionary instruction was reversible error, there ought to be evidence either that juries in general increase recoveries on this account or that the particular jury did so. In the absence of such evidence in the case at bar, we hold that the superior court's failure to give a tax instruction did not amount to reversible error.