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Is it possible to get the IRS to drop a penalty?

What can I do about the interest on my audit bill?

How many different ways can the IRS penalize me?

Can I negotiate a penalty down?

Does the IRS ever have to pay me interest?

Penalties Added to Tax Bills - When the IRS hits you with an additional tax bill (from an audit, for example), it usually adds penalties and interest. Penalties are added automatically by IRS computers or by IRS personnel at their discretion. Interest charges are required by law (and are discussed below).

Penalties are authorized whenever you file or pay your taxes late, have been found to owe additional taxes, or have failed to file all required tax forms.

Although penalties were originally meant to punish errant taxpayers—that’s why they are called penalties—they are now considered a regular and dependable source of revenue in our national budget. Reflecting this, in the past decade, the total dollar amount of penalties imposed on taxpayers increased by 1,000%. In a recent year, 25 million penalties were assessed for over $6,000,000,000. Yes, that’s six billion dollars. In short, penalties have become a tax—on a tax.

Take heart—you may be able to beat the IRS at the penalty game. The IRS can remove a penalty if you can show that your failure to comply with the tax law was due to “reasonable cause.”

IRS penalties fall into five basic categories—accuracy, fraud, failure to pay taxes, late filings, and a combined late-filing and -paying penalty.

Accuracy Penalties - The IRS can add a 20% accuracy-related penalty to your tax bill if IRS auditors find your tax return understated your tax liability. This is a commonly imposed penalty by the IRS.

Fraud Penalties - If the IRS concludes that you fraudulently omitted or underreported income, it can add a heavy fraud penalty. This penalty is 75% of the amount you underreported. For example, if you fraudulently underreported $10,000, the fraud penalty is $7,500.

Or, if the IRS finds that you fraudulently failed to file a return, it can penalize you—15% for every month you didn’t file for up to five months—a total of 75% based on the taxes owed. This penalty is rarely, if ever, imposed. The IRS usually just hits you with a late-filing penalty of 5% per month for a maximum of five months, a total of 25%.

In addition to the accuracy and fraud penalties, the IRS may stack on penalties for late paying and late filing.



Failure to Pay Penalties - The IRS can add to your bill a penalty of ¼% to 1% per month of the amount you failed to pay on time. The penalty starts off at ½% per month. If you enter into an installment agreement to pay the taxes, the IRS drops the penalty to ¼% per month. If you don’t pay and the IRS later issues a Notice of Intent to Levy (see Chapter 7), it can raise the penalty to 1% per month on the balance due.

This penalty starts on the day after the original due date, April 16 for individual tax returns. It is imposed on the unpaid balance and added to your bill on the 16th day of each month thereafter. This penalty is imposed monthly and is not prorated daily.

Late Filing Penalties - Did you file your individual tax return late? The IRS can impose a penalty of 5% per month on the tax balance due, up to 25% of the total. You max out on this penalty if, on September 16—five months and one day after April 15—you still haven’t filed your tax return. If you file late but don’t owe any taxes, there is no penalty. For some information-type forms (other than tax returns) filed late, the IRS can impose a penalty in varying amounts according to specific tax code provisions.

Combined Penalties - Did you both file late and pay late? The IRS can impose a combined penalty of 5% per month (½% per month less than the separate penalties for each). The combined penalty is based on the unpaid tax balance for each month your return is late. When you reach 25%—five months—for filing late, the penalty for late filing stops. The failure-to-pay portion of the combined penalty continues at ½% per month until it reaches a total of 22½%. Thus, the maximum combined penalty is 47½%. Note that tax penalties do not include charges for interest, which never stops running.

Late-filing penalties, late-payment penalties, or the combined penalty can be stacked—imposed in addition to other penalties such as accuracy or fraud penalties resulting from an audit of your tax return.

Taxpayer Protection from Penalties? - You can provide the IRS with a “reasonable cause” explanation before the penalty is imposed. IRS employees must obtain written approval from a supervisor before assessing an accuracy or fraud penalty. This rule does not apply to late-filing or late-paying penalties, however, which are automatic. (See IRS Form 4751.)

Interest on Tax Bills - The second unwelcome addition to every overdue tax bill is IRS-charged interest. By not paying your taxes on time, you are considered to be borrowing from Uncle Sam. Congress does not like to lend money interest free (except to various dictators and deadbeat foreign countries), so it requires the IRS to charge interest.

The interest rate is also set by Congress and is adjusted by formula four times a year and compounded daily. So interest is charged on interest. For older tax bills, interest calculations cannot be easily verified without a computer that emulates the IRS’s program. In recent years, the interest rate has ranged between 4% and 8% per year. Interest is computed on both the tax and penalties due.

Understanding Penalty and Interest Notices - When you receive a tax bill from the IRS, it usually states penalty and interest charges separately. If you don’t understand the IRS computation—it’s unlikely you will—call the taxpayer assistance number (800-829-1040) or write or ask your local IRS office to mail you a detailed penalty and interest explanation, called a PINEX (Form CP-569).

The PINEX is a multipage computer printout showing:

  • your tax account by Social Security number or employer identification number showing all tax penalty and interest computations
  • dates, interest rates, penalties assessed, and any credits—payments or refunds
  • principal tax amounts on which interest and penalties were charged
  • explanations of which penalties were applied, and
  • a summary of your account with balance due, including up-to-date penalty and interest amounts.

Check the figures on the printout to see that you agree with the amount of the taxes shown, and that you have been credited for all payments you made.

Reducing or Eliminating Penalties and Interest - The IRS can eliminate or reduce a penalty for a reasonable cause if you request it. The term the IRS uses for wiping out a penalty is abatement. About one-third of IRS-imposed penalties are later canceled (abated).

Interest, however, is rarely abated. By law, interest can be canceled only if it was erroneously applied or if it was due to lengthy IRS delays. Additionally, if you qualify for an Offer in Compromise, the IRS may reduce an interest charge or penalty along with the tax due. (See Chapter 6.)

Abatement requests can be granted at any IRS level—IRS campus, automated collection system, or personnel at local IRS offices.

Approximately 20%–25% of all IRS penalties are subsequently abated on request.

Reasonable Cause for a Penalty Abatement - The key to having a penalty removed is to show the IRS some reasonable cause for your failure to follow the tax law. Reasonable cause is any excuse that an IRS officer will buy. The Internal Revenue Manual (IRS Policy Statement P-2-7) says:

Any sound reasons advanced by a taxpayer as the cause for delay in filing a return, making deposits … or paying tax when due will be carefully analyzed …. Examples of … reasonable cause:

  1. Death or serious illness of the taxpayer or … immediate family. In the case of a corporation, estate, [or] trust … death or serious illness must have been of an individual having sole authority to execute the return or make the deposit or payment.
  2. Unavoidable absence of the taxpayer ….
  3. Destruction by fire or other casualty of the taxpayer’s place of business or records.
  4. Taxpayer was unable to determine amount of deposit of tax due for reasons beyond taxpayer’s control….
  5. Taxpayer’s ability to make deposits or payments has been materially impaired by civil disturbances.
  6. Lack of funds is an acceptable reasonable cause for failure to pay any tax or make a deposit … only when a taxpayer can demonstrate the lack of funds occurred despite the exercise of ordinary business care and prudence.
  7. Other explanations may be acceptable …. Acceptable explanations of delinquency are not limited …. Any reason … established that the taxpayer exercised ordinary business care and prudence but was nevertheless unable to comply within the prescribed time will be accepted as reasonable cause.

Practical suggestions - If possible, choose one of the first six items when requesting a penalty abatement. Also mention Number 7, that you acted with “ordinary business care and prudence” but still couldn’t file or pay your taxes on time.

Here are some explanations the IRS has accepted - Reliance on a tax professional who steered you wrong. For example, if your accountant or bookkeeper caused the tax problem by giving you bum advice or filing the wrong form, say so. Bear in mind that the IRS might counter that because you picked the tax professional, you are responsible for his action.

  • The IRS wouldn’t help you earlier. If you called, wrote, or visited the IRS and got the wrong information or no response when you tried to clear things up, make the point. Be sure to provide copies of letters you sent, the names and IRS identification numbers of all IRS personnel you spoke with, and the dates and summaries of your conversations.
  • Someone else caused your problem. For example, if your employer submitted an incorrect 1099 or W-2 form, be sure to tell it to the IRS.
  • If your penalty is from a late payment, plead that you would have suffered an undue hardship if you had paid on time. Be warned that this is a tough sell to the IRS. You will need to show that had you paid your taxes on time, you would not have been able to put food on the table. The IRS is often sympathetic if the hardship is medical related, including alcohol or drug abuse. Again, supply documentation, such as letters from doctors explaining your condition.

If it’s true, stress your clean past IRS record: You’ve never before requested an abatement, had a penalty, or been behind in paying your taxes.

How to Request a Penalty Abatement - For penalties imposed by IRS mailed notices, start the abatement process by mail. As soon as you receive a tax bill with penalties, write back and ask for an abatement. Use a letter like the sample, below. Alternatively, use IRS Form 843, Claim for Refund and Request for Abatement. (A copy is available on the IRS’s website.) Attach to your letter a copy of the IRS notice showing the penalty.

Also attach copies of substantiating documents—such as a doctor’s statement, fire department report, insurance claim, or death certificate of a family member. Without supporting papers, your abatement request may not get serious consideration.

If possible, enclose payment for the underlying tax, and write on your check that the payment is for the tax portion only. Paying the tax stops the accrual of interest on that balance. Send the letter with enclosures to the IRS address in the notice, and use the IRS enclosed bar-coded envelope.

Keep copies of any letters or documents sent to the IRS. The IRS is notorious for ignoring or losing taxpayer correspondence. Send the additional copies if you get another IRS billing before getting a reply to your initial abatement request.

For penalties imposed in an audit, ask the auditor or a manager to drop them before you sign the report. If that doesn’t work, you can protest the penalty to the appeals office. (See Chapter 4.)

If Your Abatement Request Is Rejected - If the IRS officially rejects your abatement request, you will get a written notice. You then have four options besides accepting your fate:

Appeal - File a protest—a letter requesting an appeal. See the sample letter, below.

Send your appeal letter to the IRS. Unlike an appeal of an audit, the IRS does not grant you an in-person appeal hearing after an abatement request is rejected. The appeal is handled by mail or telephone.

Request a transfer of your file - Write the IRS requesting that your file be transferred to your local IRS office. Then request a meeting with a revenue officer to try and convince the officer that your penalty should be removed.

Pay and claim a refund - Pay the penalty and then file for a refund. Despite what you may think, paying first does not hurt your chance of getting a refund granted. Your refund request should be submitted to your IRS campus on Form 843, Claim for Refund and Request for Abatement. You can either attach a letter of explanation similar to the one you tried in your original abatement request, or give your reasonable cause explanation in the small space provided on Form 843.

If your Form 843 claim is refused, you can sue in a U.S. District Court or the court of claims. (See Chapter 5.) Rarely, however, are tax penalties large enough to justify the costs of going to court.

Make an Offer in Compromise - An Offer in Compromise is a formal procedure for contesting or negotiating any IRS bill, including a penalty. (See Chapter 6.)

Abating Interest - Congress makes the IRS charge interest on a tax bill. Of course, if a tax or penalty is canceled for any reason, interest on it is wiped out as well. Usually the IRS computer does this automatically, but check your bill to make sure.

The tax code authorizes abatement of interest only in the following circumstances -(a) The IRS was wrong in charging interest —meaning that either you paid the tax when it was due or didn’t owe any taxes on which interest could be charged. If this happens to you, write to the IRS, explain what is wrong, and ask for an interest abatement. If that doesn’t work, call the Taxpayer Advocate Service at your local IRS office. (See Chapter 8.) You also can sue in U.S. District Court or the Federal Court of Claims to recover interest already paid, but this is too costly to be a practical alternative.

(b) The IRS incorrectly sent you a refund, wants its money back, and is charging you interest all the way back to the time the check was issued. This is not so unusual. Computer-generated tax refunds sometimes come out of the blue. You are entitled to an interest abatement as long as your actions did not cause the refund. Once the IRS asks for its money back, it can, however, charge you interest, but only from the date of the request, until you repay it. (Internal Revenue Code § 6404.)

(c) The interest resulted from delays of the IRS in performing ministerial acts. For example, the IRS delays sending a tax bill after you agree to an audit report. You are entitled to an interest abatement of all but the first 30 days of the delay. (Revenue Procedure 87-42; IRS Regulation 301.6404-2T.) So if, following an audit, a bill with interest arrives 90 days after you agree to the result, you can have the last 60 days of interest abated.

The exception for ministerial acts does not cover interest while you challenge a bill or while the IRS audits you, or while you appeal or go to tax court. This interest cannot be abated, unless you win your case.

(d) The interest accrued more than 18 months after the original due date of a tax return or the date the return was filed, and the IRS did not notify you that additional tax was due during that period. (Internal Revenue Code § 6404.)

(e) The interest accrued on a return you filed late because you were living in a federally declared disaster area when the return was due.

As with taxes and penalties, interest also may be reduced or eliminated by an Offer in Compromise or through bankruptcy. (See Chapter 6.)

Sample Letter Requesting Abatement of Penalties

To: Penalty Abatement Coordinator
IRS Campus
P.O. Box 9941
Ogden, UT 84409

Re: Request for Penalty Abatement

To Whom It May Concern:

I am requesting an abatement of penalties in the IRS notice enclosed dated 5/5/xx in the amount of $2,312.10.

The reason I [select one] filed late, paid late, didn’t report some income was that [fill in your reason, such as]:

  • I was suffering from a nervous breakdown
  • My wife had just passed away
  • My house burned down on April 14 with all of my tax records
  • I was a hostage in Lebanon
  • any other excuse.

Enclosed is a [describe your documents, such as]:

  • Letter from Dr. Freud explaining my condition which prevented me from filing my tax return on time
  • Death certificate confirming my wife’s passing
  • Report from the fire department
  • Letter from the U.S. State Department confirming my status as a hostage
  • any other documentation.

I have also enclosed payment that covers the amount of the underlying taxes I owe. [Optional, but a good idea if you can afford to make the payment.]

Please abate these penalties for reasonable cause. I can be reached at 801-555-3444 during daytime hours.

Thank you,

Sanford Majors

Sanford Majors

Enclosed: IRS Tax Notice; doctor’s letter, death certificate, fire report, letter from State Department [or whatever]

Sample Letter Appealing Denial of Abatement of Penalties

IRS Campus
P.O. Box 9941
Ogden, UT 84409

Re: Appeal of Penalty Abatement

Sanford Majors
43 Valley Road
Salt Lake City, UT 84000

SSN: 555-55-5555

Telephone: (801) 555-1212

January 15, 20xx

To Whom It May Concern:

I wish to appeal the denial of my penalty abatement request, which I received on January 10, 20xx. A copy of the denial is attached.

The grounds for my appeal are that I had a reasonable cause for [state type of penalty] filing late, paying late, not reporting some income because [state reasons]:

  • I was in a coma
  • My tax preparer had just died
  • any other excuse.

I can prove my condition with [state type of proof]:

  • Letter from Dr. Stein proving my condition
  • Death certificate confirming my tax preparer’s death
  • any other documentation.

Thank you,

Sanford Majors

Sanford Majors

Enclosed: IRS Tax Notice; Dr. Stein’s letter; death certificate [or whatever]

How to Request an Interest Abatement - To request an interest abatement for an IRS error in billing (a) or (b) above, follow the sample form letter. Instead of alleging reasonable cause, as the form letter does, state something like, “The IRS wrongfully sent me a refund and is charging interest. I should not have to pay interest because my actions did not cause the refund to be sent.” Although interest is seldom abated except when the IRS has made the mistake, it never hurts to ask and you are only out the cost of a first-class stamp.

If you are requesting an abatement because of IRS delays ((c) or (d)), use Form 843. If you are in a disaster area, call the IRS for instructions at 800-829-1040.

Designating Late Tax Payments - Always tell the IRS how a late payment should be applied to your tax account. If you don’t, the IRS allocates it first to taxes, then to penalties, and last to interest. Payments are automatically applied to the oldest tax period for which you owe. For example, you owe $10,000 in taxes, penalties, and interest for several of the past eight years. You make a $1,500 payment. Tell the IRS in writing that it is to be applied to the most recent year.

Advantages of Designating Your Payments - On the date income taxes are assessed, the IRS has ten years to collect these taxes, penalties, and interest. If part of your tax bill is for a year for which the ten-year limit is about to expire, then be sure to designate in writing that your payments are to be applied to your most recent tax debts. For example, suppose in 2008 you want to make a payment to a tax debt for years 1999 and 2000. Designate the payment to 2000, because the 1999 tax debt expires on April 16, 2010, assuming you filed your 1999 tax return by April 15, 2000. (See Chapter 6.)

Another reason to designate payments to the most recent years is your right to reduce some tax bills in bankruptcy. Generally, older tax bills are more easily reduced or eliminated in bankruptcy than newer ones. (See Chapter 6.)

How to Designate a Payment - When making an income tax payment by check or money order, write in the lower left-hand corner your Social Security number and the tax period or year you are paying. For a business tax, use your taxpayer identification number instead of your Social Security number.

Unless the payment is for the current tax bill, enclose a letter with the payment clearly stating that payment is to be applied to the tax period or year noted on your check or money order. Otherwise, the IRS will apply the payment to the oldest tax period. If you’re concerned that the IRS has misapplied the funds, you can request an account statement, called a Record of Account for individuals with Social Security numbers or businesses with separate identification numbers. (See Chapter 1.)

If the account statement shows that the IRS ignored your designation request, send photocopies of your letter and the checks to show that payments were not misapplied. With proof of your designation of payment, the IRS will correct its records.

If the IRS refuses or ignores your request, complain to the taxpayer advocate. (See Chapter 8.)

CAUTION - Only voluntary payments can be designated to particular tax periods  -  If the IRS levies your wages or bank account or withholds a refund, you have no right to designate how it’s applied.

By: Marcus Fontain, J.D.

President and CEO

Unimundo Corporation

This email address is being protected from spambots. You need JavaScript enabled to view it.

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Sue your bank in California over a wrongful foreclosure, and the best you're likely to get - if you have ironclad evidence that it broke the law - is a loan modification. That is, a "win" for the borrower usually means the bank keeps another customer and collects interest payments that are thousands of basis points above the level at which the bank is able to borrow from the Fed. Very often, however, homeowner lawsuits against the banks end in dismissal. In the parlance of the courts, the defendant's demurrer is sustained. Judges in California's superior courts often rule in favor of the banks, and the few lawsuits that filter up to the appeals courts and Supreme Court don't fare any better.

Why do the banks keep winning in court against borrowers alleging wrongful foreclosure, fraud and other abuses? Many borrowers and their lawyers say there's a judicial bias favoring the banks over homeowners, and that this bias is revealed by the economic position of the judges themselves. Most California judges are wealthy, and many of them hold significant investments in financial corporations and bonds, oftentimes even in the very same banks and mortgage lenders that have been sued by thousands of Californians over alleged fraud, deception and wrongful foreclosure.

Case in point: Baldwin v. Bank of America, a borrower lawsuit alleging wrongful foreclosure that battled all the way to the steps of California's Supreme Court. In 2007, Marvin Baldwin borrowed half a million dollars from J&R Lending to purchase a small three-unit apartment building in Long Beach, California. It was the height of the real estate bubble. Things quickly fell apart, and Baldwin ran into financial troubles.

In 2009, Bank of America, which by this point had acquired Baldwin's loan, notified him that he qualified for a federally sponsored HomeSaver Forbearance Program, a temporary bridge toward a permanent loan modification. Baldwin assumed that this was how the taxpayer-funded bank bailouts were translating into assistance for small landlords, so he cooperated with Bank of America and made payments under the program. But late in 2010, Bank of America recorded a notice of default against Baldwin's loan. Things looked dire.

Then in October, two months after filing the notice of default, Bank of America spun around again and appeared to be offering Baldwin a rescue plan. Bank of America announced a national moratorium on foreclosures due to the bank's acknowledgement of "irregularities" in its own internal processes. But then Bank of America reversed course yet again. In spite of announcing a moratorium on foreclosures - a moratorium stemming from the robo-signing scandal in which it was revealed Bank of America was routinely breaking the law - Marvin Baldwin's home was suddenly sold at auction on December 8, 2010.

He filed a lawsuit alleging breach of contract and fraud and sought injunctive relief to save his property. Baldwin alleged in his lawsuit that Bank of America violated California's Unfair Competition Law, which states, among other things, that a company cannot act in ways that would be likely to deceive a reasonable customer. The foreclosure "moratorium" Bank of America announced was one such deceptive practice because the bank lulled its borrowers into inaction, but then in fact continued to foreclose on properties and sell them, argued Baldwin and his lawyer. A year later, a trial court in Los Angeles sided with Bank of America, ruling the foreclosure and auction were perfectly legal, and that the bank's actions weren't deceptive.

Marvin Baldwin and his lawyer Lenore Albert appealed and argued their case before California's 2nd District Appellate Court. They lost again. The court's reasoning waded deep into gray areas, interpreting California's business laws, fraud laws, and real estate laws liberally in the Bank of America's favor.

Broad Pattern of Bias Seen

Plaintiffs' attorneys see a broad pattern in California in which the judiciary has routinely sided with the banks, even when the law could be interpreted to prevent or reverse a foreclosure.

"They don't want to be the judge that allows 40 million mortgages to go back to the borrowers," said Patricia Rodriguez, a lawyer who has filed homeowner lawsuits against banks and mortgage servicers in multiple California superior courts. "They don't want to possibly set a precedent." A single ruling against Bank of America that reverses a foreclosure sale because the bank didn't follow the letter of the law, for example, could spill over into thousands of other cases and potentially impact the profitability of the entire banking and loan servicing industry in California, said Rodriguez.

"It was very clear that there is one form of justice for the small borrower and another form of justice for the moneyed interests," said Donald Adams, a retired California attorney. "It pains me to say that, but having seen the real estate debacle and the judiciary's protection of these fraudulent practices, I have reluctantly come to that conclusion."

As to why the banks so often come out winners, some point to the economic interests of the judges. The average superior court judge in California is paid a salary of about $150,000, but many of the judges are appointed to the bench after years of lucrative private practice where they earned many times this amount of money. Most judges worked as lawyers at large law firms and boutique offices whose clients include major corporations, real estate companies, banks, and others that can pay top dollar. By the time they become judges, most of these lawyers have amassed considerable financial wealth, and like other members of the top 1% of income earners and wealth holders, most judges invest their fortunes in stocks and bonds. And after years of working for corporate clients, many judges have also been steeped in legal and social philosophies that favor the interests of the wealthy above those of consumers and debtors.

It's impossible to really know why California's judges have decided so many mortgage fraud and wrongful foreclosure cases in favor of the banks. Certainly it's a mix of factors, including ideology, but also the existing structure of the legal system that favors wealthy defendants like the banks over isolated and indebted plaintiffs; the banks can afford the best lawyers to represent them, and the biggest banks spend several billion each year lobbying the legislatures of all 50 states and the federal government to shape laws and regulations in their favor. It's an uneven playing field from the very start. But one possible way to gauge the possibility of bias in the legal system is to look at the economic interests of California's judges. Unlike ideology, the material interests of the judiciary can be observed and measured. Through their ownership of bonds in financial and mortgage lending companies, many judges own senior claims on debt, debt that is directly tied to the loans of homeowners. Judges also own equity stakes in corporations, the value of which hinges very much on residential mortgage loans and loan-servicing activities.

For example, 42 of California's 105 appeals court judges own stocks or bonds in financial companies. Seventeen of California's appeals court judges own stock in Bank of America, while 10 own stock in Citibank, 6 in US Bank, 5 in JPMorgan Chase, and 4 in Wells Fargo. These judges own significant numbers of shares, on average amounting to about $10,000, but some California appeals court judges have revealed in their financial disclosure reports that they own perhaps as much as $1 million in stock in these banks.

The implication here is that many of California's judges have a financial stake in the profitability of the largest mortgage servicers in the state, the same banks that have been brought before the courts in thousands of cases alleging wrongful foreclosure.

For example, in the Baldwin case, one of the appeals court judges who ruled in favor of Bank of America, Steven Suzukawa, owned as much as $100,000 in Bank of America stock, according to public records. Another of the judges on the three-judge appellate panel that heard the Baldwin case, Norman Epstein, owned as much as $10,000 in Bank of America stock. This was not disclosed, according to parties involved in the case. Under California's judicial ethics standards, a judge owning more than $1,500 in stock of a company that is party to a lawsuit should recuse themselves from the case.

Baldwin fought on after the setback in the appeals court which was decided in February of this year, petitioning the Supreme Court of California to hear the case. California's highest court refused to consider the lawsuit, dismissing the petition on May 21.

"I am a bit shocked at the failure to review such a new issue that affects thousands," wrote Lenore Albert, Baldwin's counsel, in an email.

One of the Supreme Court judges who was set to decide whether or not Baldwin would be heard had to recuse himself from even making that preliminary decision. Ming Chin, appointed to the California Supreme Court by former Governor Pete Wilson in 1996, disclosed as much as $100,000 worth of stock in Bank of America. Judge Chin also owns stock in Morgan Stanley, the investment bank that sold billions in mortgage-backed securities during the real estate bubble of the 2000s.

Majority of Justices Major Stakeholders in Banks

A majority of California's Supreme Court justices own major stakes in the banks that service the majority of mortgage loans in the state. Justice Marvin Baxter owns shares of Wells Fargo Bank and Citibank. Justice Carol Corrigan owns shares of Citigroup and part of a business called Redwood Mortgage Investors, a private investment company that owns tens of millions of dollars’ worth of residential mortgage loans in California. Justice Joyce Kennard owns stock in JPMorgan Chase and Citibank. Justice Kathryn Werdegar owns as much as $1 million in Wells Fargo stock. That makes five of California's seven Supreme Court justices’ major investors in the mortgage lending and loan servicing industries.

"I'm so frustrated," said one lawyer, speaking on the condition of anonymity, about decisions of California's judges. "I have my team putting together the wall of shame for the judges, how they're not enforcing the law."

The state courts, many of them, were individually biased against the consumers," said retired attorney Don Adams. "The courts were not going to let individual borrowers escape mortgage payments, and were less concerned with stopping the fraudulent and predatory activities that got us into the mess in the first place."

In 2009, Adams sued Countrywide on behalf of a client who sought to quiet title to their home after a tangled deal of loans involving Countrywide, Citibank, and Bank of America led Countrywide to wrongfully foreclose. Countrywide admitted to foreclosing "in error," but a trial court found in favor of the bank, forcing the borrowers to sign a new loan agreement with Countrywide. Adams and his clients appealed the decision, but then lost before a panel of three judges in California's Second Appellate District court. One of the judges, Arthur Gilbert, owned stock in Bank of America and Citibank. Another one of the judges, Kenneth Yegan, disclosed two loans for over $1 million he had taken from Countrywide.

According to Adams, the bias of the courts in favor of the banks existed long before the foreclosure crisis. "Had courts enforced the law against the lenders, the great recession did not have to occur," he said. "Many of us were after the New Centurys, the Ameriquests, and Countrywides well before the collapse. Even after the economy imploded, most judges did their best to protect the business interests of the predatory lenders by cynically not wanting to let the consumers 'off the hook' without recognizing that borrowers would still have to pay a mortgage, but the lenders would have to unwind the loans and do it again. The courts felt that was too much for the fraudsters - and accordingly protected them."

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A 27-year-old millionaire reveals how he built his wealth Anton Ivanov isn’t your average millionaire.
For starters, he’s barely 27 years old, he doesn’t work in Silicon Valley and he isn’t heir to a family fortune. He doesn’t live in a tiny house or get his food from a compost garden in his backyard, either.

Ivanov, who shares wealth-building tips on his blog made his million the old-fashioned way: He read books. He saved early and often. And he started planning his rise to millionaire status before most kids his age had their driver’s license.

“I’m a testament that if you want something bad enough and you keep working towards it ... you will get to where you want to go,” he says. "It was my habits and my principles that made me rich."

Here’s how he did it.

Starting young

A decade ago, Ivanov was like any other teenager in the U.S.. He went to high school, earned decent grades, and held down a minimum-wage job at Subway. His parents, who had moved his family from their native Russia in 2002, both worked full time — his mother as an attorney, his father as an accountant. They lived a moderately middle-class life in the suburbs of San Diego.

But Ivanov realized early on that there was something different about his new neighbors — they all seemed a lot wealthier than his family. His parents were heavy spenders and harbored a deep mistrust of financial services. He couldn’t quite blame them — they had moved to the U.S. just a few years after living through one of the worst depressions in Russian history. But at the same time, he felt like he was missing something.

“In high school, there was pretty much no financial education and my parents wouldn’t talk to me about money,” he says. “Everything I learned about money I had to learn myself.”

He devoured books on wealth building. An early favorite was “Think and Grow Rich,” the 1937 classic by Napoleon Hill, which details strategies that can be used to overcome psychological barriers to wealth.
“That book was extremely influential,” Ivanov says. “It wasn’t a ‘how to get rich’ book but it gave me a vision and a mental system that I could use to achieve pretty much anything I wanted.”
At age 16, he had one goal in mind: become a millionaire.
College or career?
Anton opened a savings account at a local bank and socked away 100% of his Subway wages over the course of three years. By the time he graduated high school, he had saved about $10,000. He might have used the cash to cover part of his college tuition, but he knew it wouldn’t be enough to cover all of his expenses. He didn’t relish the thought of taking on tens of thousands of dollars in student loans to make up the difference, either.
"My family wasn't really prepared to pay for my college tuition, so I knew I would have to rely on at least some student loans to get me through, which I was very much against,” he says.

He had other ideas for kickstarting his career. While his friends signed up for college classes, Ivanov celebrated his 18th birthday by opening his first Roth IRA. After spending some time working (mostly administrative jobs near home), he decided to enlist in the U.S. Navy at age 20. He earned about $55,000 a year as an electronics technician and took distance learning classes to earn a Bachelor’s degree in information technology and programming. Uncle Sam picked up the tab for his tuition and fees.  
“When I compared [going to college] to joining the military, the latter seemed like a smarter idea because I would be earning income right away instead of waiting until I graduated,” he says. “And I could receive an education pretty much completely free, which I did.”

The ‘lazy’ investor

After Ivanov maxed out his Roth IRA (the annual contribution limit is $5,500), he opened up a small brokerage account with TradeKing. Years of careful research convinced him stock-picking wasn’t for him. His investing strategy was simple: focus on low-cost stock mutual funds that covered a variety of major asset classes and let the market do its job.

“It’s what I would call a lazy portfolio,” he says. After doing research, Ivanov decided to invest in seven asset classes: domestic, large-, mid-, and small-cap funds, emerging market funds, commodity funds, with a small chunk in bonds. Then he let it ride. He rebalances his portfolio once a year, if at all.  
A couple of years into his stint with the Navy, Ivanov faced his first true test as an amateur investor. By saving 60% of his Navy income and taking on freelance jobs on the side, he had been investing somewhere between $40,000 to $45,000 per year when the financial crisis hit in 2008.

He says he lost “a good amount,” but when the market sank he didn’t sell like many other investors did. “I powered through and when the market hit bottom, that’s when I tried to save and invest even more. To me, it was a no brainer,” he says.

Getting into the real estate game

Heavily influenced by books like “The Millionaire Real Estate Investor” and “The Millionaire Next Door,” Ivanov knew he wanted to start investing in real estate. His timing couldn’t have been better. The bust had essentially turned the housing market into the world’s biggest bargain bin.

In 2009, Ivanov put down $80,000 on a $400,000 condominium in San Diego, which he rents out for a $36,000 a year (he nets about $12,000 a year after making his mortgage payments). Today he estimates the property’s value is well over $600,000. 

Since then, Ivanov has added another property to his nascent housing empire. He purchased a $430,000 duplex earlier this year. He collects $21,000 a year in rent ($12,000 net after his mortgage is covered) renting out one of the apartments, while he and his fiancee live in the other.

“I believe in taking smart risks,” he says. “If you see an opportunity and you think it’s a good opportunity, you should take it and understand that you may be wrong and understand what the repercussions may be.”
He hopes to own at least 10 properties by the time he hits his 40s, but he’s in no rush. Once his housing expenses are taken care of, he puts all of his income — from his rental properties, his job and his freelance work — first into his retirement account, emergency savings account, and then into his taxable brokerage account. Once those goals are met, he contributes to a separate high-yield savings account, which he sets aside for future real estate purchases.
Keeping it simple

Committing to saving 60% of his income was no small feat for Ivanov. The average American manages to save only than 5% of their income per year.

He swears by one basic savings strategy: automate everything and never rely on credit. 
“The day my salary gets deposited, I don’t even see that money,” he says. “It’s in and out of my account, which keeps me honest and keeps me on track.”

The emergency fund he’s been carefully maintaining since his days at Subway has come in handy as well. When both his parents unexpectedly passed away a few years ago, he was able to rely on that money to cover his airfare and funeral expenses.
Fortunately, military life was the perfect environment for a single person looking to save. The bulk of his fixed expenses — housing, food, transportation, insurance — were covered. He set up automatic transfers for his savings and investment accounts and followed a strict schedule. First, he maxed out his annual Roth IRA contribution. Then he contributed the maximum to his annual Thrift Savings Plan (the federal employee version of the 401(k)). He split the remaining balance between his brokerage account and the savings fund he keeps for future real estate investments.

While he studied, he earned extra cash through one-off web design and programming gigs he got through freelance job websites like and He estimates these side jobs added another $15,000 to $20,000 to his annual income.

“Definitely being in the military helped a lot, but I also had a mature outlook on life,” he says. “Buying expensive things isn’t really fun for me. I realized those things don’t really make me happy.”

Reaching the $1 million mark

Ivanov left the Navy in 2013, but even after he moved back to San Diego, he kept up his frugal lifestyle. Eager to add to his investments, he made increasing his income a top priority and landed a full-time job working as a software developer and test engineer. Combined with the freelance work he continues in his free time, he earns just shy of $100,000 a year (not including income form his rental properties) and still saves at least half of his net income.
Every expense — from his gym membership to his pending wedding in 2016 — is planned for and saved for well in advance. His detailed planning regimen is, he says, the key to his success so far.
“Usually, at the beginning of the year I look at my life for the next two to five years and I plan it out,” he says. “I write out any expense I’ll have that I won’t be able to cover using my paycheck and figure out how much I need to save each month to meet those goals by my deadline.”

Ivanov crossed the $1 million net worth mark just two months shy of his 27th birthday in June this year. He was thrilled to finally reach this milestone — but not surprised.  

“If you have a really strong desire in your head, you can power through any obstacle you may face,” he says. “I truly believed that when I was 16 and I believe it now.

Courtesy of  Mandi Woodruff
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Are you protecting your most important asset?

If you were asked what your most important asset is what would that be?  Your home?  Your car?  Maybe your retirement savings? 

Think harder….what allows you to have those ‘things’?   

Your most important asset is your health which allows you to work and earn a paycheck.  Do you have ‘paycheck protection’?   

Paycheck protection, also known as disability insurance, should be an integral part of your health and financial portfolio.  Many of us think we are simply invincible.  Statistics show that even a 20 year old has a 1 in 4 chance of being disabled before they retire.  Typically accidents are not the culprits of disabilities.  Cancer, back injuries, heart disease and other illnesses cause the majority of long term disabilities. The average disability lasts 34.6 months.  Most of us don’t have 3 months of savings, let alone three years.  (all statistics are from 

Planning is the key.  Below are a few details to begin your process, for additional assistance, contact an insurance or financial professional who works with disability coverage. 

  • How much sick time do I have with my employer?
  • Does my employer offer Short Term or Long Term Disability? What amount of coverage, length of time, am I paying the premiums and if so pre/post tax?  The last is extremely important as it determines the taxable nature when you need the benefit.
  • What do I have in personal savings?
  • Social Security Disability and Worker’s Compensation.  Social Security Disability is NOT immediate possibly taking up to 29 months after someone is deemed disabled to begin.  Did the disability happen due to a work related incident that Worker’s Compensation is involved? 

Spring is the season of new beginnings.  Beginning or staying healthy is one of the overall best ways to reduce your chances of a disability.  Start small, but start.  Once you’ve started planning and are ready, call, email or stop in to discuss your concerns and options  with an insurance agent regarding protecting your most important asset, your income.

Norma Fontain

Courtesy of Health Insurance Advisor 

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