Tax Implications If Gordon Klein Wins $5 Million in Damages from Suing UCLA

I know I’m too easily distracted and ought to be putting out the garbage cans, submitting op-eds, and looking at the draft my co-author just sent me, but tax law is just too much fun. And if the UCLA chief counsel’s office reads this, it will send shivers up their spine, sort of like when you hear the cannibals who tied you up deciding who gets a leg, and who gets the liver, and whether kidneys need to be cooked well done to avoid salmonella.

Someone responded to my tweet,

The best defense is a good offense.
Listen to Klein being interviewed on
and sign the petition to fire Dean Bernardo at

and replied

OMG. He will sue and get millions from the school

I hadn’t thought of that. Klein is very simpatico in that interview. He grew up in Detroit, went to public schools, plays keyboard gospel music in black churches, was whistleblower against someone who was trying to reduce the number of poor hispanic students, etc. Play it before a jury, and UCLA is dead meat. I don’t know how much he deserves to collect in money damages from UCLA, but he’d collect 10 times as much, plus punitive damages, and the judge wouldn’t want to remittitur it down to a reasonable level. Maybe Klein would even get to own the Anderson School of Management building at the end of the day. I myself would rather live in Malibu as Klein does now than in Westwood, but it would be very satisfying to watch Dean Bernardo vacate his office in my newly acquired building (my last year at UCLA I lived in Topanga Canyon and would drive through Malibu on the Pacific Coast Highway each day to Westwood on my 45-minute commute, then on Sunset Boulevard and past Bel Air).

The interesting part, though, is how to get the money past the IRS and the equally voracious California Department of Revenue. I expect that in California, or under some federal statute he might sue under, the damages would be taxable income. …

I’ll finish this later.

Replying to
Actually, you’re right. If this gets before a jury, especially one with black people on it, UCLA is toast. I expect Klein is plenty rich enough already, but he can have fun giving away the money.

Voi dire will be humorous. UCLA will be trying to find excuses to get blacks and hispanics out of the jury pool, but they can’t let them notice they’re doing it or they’re in even worse trouble. They will try to transfer to a desert county with just anglos, if such a place exists, but Klein will block that easily.

I will have to send him my tax advice for the proceeds. It’s taxable income, and there’s a limit on charitable deductions— used to be 50% of income, but I think maybe the Trump tax act raised it a little.

A trick which would *not* work would be to settle for UCLA giving five million dollars to the charity of his choice. Under the assigned-income doctrine, it’s still all taxable income to him, so he’d hit the deduction limit.

I just discovered that if he settles with UCLA in 2020, he can give away up to 100% of his income to certain charities under the CARES Act. But can it settle that fast? Probably not.

You can carry over to future years, but he’d probably be at the limit the rest of his life and die without using up his carryforwards.

But what he *can* do is this. After filing suit against UCLA, but before settling or winning, formally assign the proceeds, whatever they may be, to a charitable trust that later will distribute them to charities (with Klein as trustee).

At that point, my research a couple of years ago led me to believe, the income is inchoate and the IRS and tax statutes would treat the gift as having de minimis value. The only question seemed to be how late he could assign the proceeds– maybe he could even during the trial.

I researched this for my Citigroup suit, since if I’d won it (I didn’t),I’d have a ridiculous income of something perhaps in the 100’s of millions that year and if I gave it all to charity, I’d go bankrupt and the IRS would take my house to pay the tax. Or claw back from charity.

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