Alaska Employment Law

Parties to employment matters seek to discover income tax returns for several purposes:  An employer defendant may want the plaintiff’s returns to see what the plaintiff’s post-termination income has been.  Plaintiffs as well as defendants might want the returns of expert witnesses to try to impeach their trial testimony.  Friday’s revised opinion by the Alaska Supreme Court lays out when the trial judge may order production of a return.

In the appeal in a non-employment (personal injury) case, the defendant argued, inter alia, that the trial court (Judge Mark Rindner) had erred in requiring her medical expert to disclose his income tax returns.  The Supreme Court (unanimously, per C. J. Fabe, with Bryner not participating) affirmed the trial judge on this issue, though it reversed on other issues and remanded.

Privilege v. privacy: In Alaska, tax returns are not privileged (they are elsewhere), but are possibly protected by a taxpayer’s right to privacy.   

Relevance of tax information: The first issue is relevance.  If the taxpayer derives a considerable income from activity relevant to the lawsuit - as might a testifying medical or economic expert - then this first criterion is met, because substantial income may show the witness’ tendency to favor the payor. 

while an expert witness might not normally be required to turn over their financial information, there may be ‘a plausible argument that the witness generates such a significant portion of his or her income from a particular side or particular attorney that the expert’s impartiality can reasonably be questioned.’

Op. at pp. 14-15.

Balancing relevance and right to privacy:  

On the other side is the taxpayer’s interest in privacy.

where the matters at issue in a discovery ruling are potentially protected by the right to privacy, merely showing that the matter is relevant and not protected by a privilege does not necessarily guarantee that the matter is discoverable.  Trial courts must also balance the plaintiff’s ‘right to discovery . . . with the [taxpayer’s] right of privacy.’  The Alaska Constitution provides strong protections for matters in which individuals have a subjective expectation of privacy ‘that society is prepared to recognize as reasonable.’ [The taxpayer] has argued that he has a right to privacy in his tax returns, and we assume that his expectation is one society would recognize as reasonable.

The Court noted that “the right to privacy is not absolute,” and then applied the test of Jones v. Jennings, 788 P.2d 732 (Alaska 1990), which permits disclosure only if it serves “a compelling state interest.” Any disclosure must occur in a “manner which is least intrusive with respect to the right to confidentiality.” 

 The party seeking the tax information will flunk the “compelling state interest test” if it has alternative means of obtaining the same information from “some other source that is more convenient, less burdensome, or less expensive.” 

If the requestor shows a “compelling state interest,” the trial court must minimize intrusion into the taxpayer’s privacy by selecting one of several ways:  a) “conducting a preliminary in camera review of the records and approving the release of only those portions that are relevant to the proceeding,” i.e., redaction; or b) ordering the disclosure of the entire tax return but under a protective order.  Op. at pp. 16-17.

Noffke v. Perez, Op. No. 6240 (Alaska Mar. 21, 2008), revising in aspects immaterial to this issue, 2007 WL 4554391 (Alaska Dec. 28, 2007).

Michaela Kelley Canterbury of Kelley & Canterbury represented the plaintiff.  Paul Waggoner represented the insured.