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to the jury. The judge instructed the jury as follows with
respect to punitive damages:
The plaintiffs [petitioner and the male taxpayer
in Whitley v. Commissioner, T.C. Memo. 1999-124] are
also seeking punitive damages in their conversion cause
of action.
The law permits the jury, under certain
circumstances, to award punitive damages in order to
punish a wrong-doer for some extraordinary misconduct,
and to serve as a warning not to engage in such conduct
in the future.
Thus, if you find that the plaintiffs have shown
by a preponderance of the evidence, that the defendant
converted the plaintiffs' money with malice, ill will,
a conscious indifference to the rights of others, or a
reckless disregard for the rights of others, you may
award the plaintiffs punitive damages.
If you so find, it becomes your right to award
punitive damages in such an amount as you unanimously
agree to be proper in light of the character of the
wrong committed, the punishment which should be
applied, and the ability of the defendant to pay.
The jury found against Academy on the conversion claim and
awarded petitioner $51,499 in actual damages for unpaid
commissions and $250,000 in punitive damages, together with
"interest thereon at the rate of 8.85 per cent and his costs of
action". The jury's verdict was affirmed upon appeal.
Academy paid $371,542 to petitioner in 1992, and, from that
amount, he paid his attorneys the legal costs, which consisted of
$148,617 in attorney's fees and $3,279 in court costs.
Petitioner included the actual damages in income on his Schedule
C, Profit or Loss From Business, and he claimed on that schedule
a deduction for the legal costs. Petitioner did not report any
of the punitive damages on his 1992 Federal income tax return.
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