T A X L I E N & L I A B I L I T Y G U I D E

T A X L I E N & L I A B I L I T Y G U I D E

INTRODUCTION AdvisorLoans was built with the specific intent to provide Financial Advisors with access to capital to meet financing needs (e.g., practice acquisition, working capital, commercial real estate). We discovered early on that some advisors had tax liens impeding their ability to borrow funds. Rather than turning our backs on advisors, we set out to find a solution for advisors that would give access to much needed capital. From that need, the Tax Lien & Regulatory Division was born. We help advisors and broker dealer compliance with tax lien resolution services. While many of our clients are also seeking lending, this is not a requirement. The majority of our clients are motivated to call us to help them report or remove tax liens for compliance and recruiting reasons or to avoid FINRA fines, suspensions and license revocations. Advisors who are Registered Reps under FINRA is the only occupation we are aware of where your tax liens are made available and promoted to the public through a format such as BrokerCheck. Advisors are held to higher standards compared to most other industries. If a doctor or lawyer has a tax lien their clients and potential clients will never know. When a Financial Advisor has a tax lien, FINRA reports it on BrokerCheck for the world to see. Dealing with tax liens and the IRS is complicated enough but when FINRA gets involved advisors are increasingly more likely to be subject to fines, suspensions, or license revocations for not properly disclosing tax liens. As a former FINRA registered rep and current Managing Attorney of our Tax Lien and Regulatory division, I specialize in assisting advisors with resolving tax lien issues and completely removing tax lien disclosures from FINRA, BrokerCheck, and the public record entirely. Most firms who specialize in tax liens think that FINRA is a worldwide soccer association or a government agency helping hurricane victims. Most have no idea what your GDC or CRD is, or the difference between the two. Our team of specialists only works with advisors and we have FINRA on speed dial. I hope you find this guide helpful and we look forward to speaking with you about your situation and how we can help! Our initial consultation conversation is always complementary. DOC KENNEDY AdvisorLoans Managing Attorney Tax & Regulatory Division 651 Corporate Cir., Ste 203 Golden, CO 80401 Main Ph: (844) 229 2553 Direct Ph: (720) 282 5154 Fax: (720) 452 0613 Email: Doc.Kennedy@AdvisorLoans.com

OVERVIEW What is a Tax Lien? The U.S. Government files a Federal Tax lien with the County Clerk & Recorder of the county in which you reside, or are known to have an interest in real property (e.g., homes, commercial property, etc ). The lien is filed to ensure that if you dispose of any property, the U.S. Government receives proceeds from the sale of that property. How Does a Tax Lien Impact Advisors? An advisor with a tax lien filed against him suffers an initial drop in his personal credit score. The extent of this drop varies widely depending upon other factors related to the advisor s credit history. In addition, equity in the advisor s real property decreases or becomes entirely inaccessible; depending upon the amount of equity in relationship to the size of the tax lien. The most immediate impact on advisors is imposed by FINRA s requirement that the advisor disclose the tax lien within 30 days of the date it was filed. Failure to timely disclose results in a fine of $25 per day, up to a maximum of $1,575. Upon disclosure, FINRA updates the advisor s BrokerCheck profile U4 disclosures section to include the date of the lien, dollar amount listed on the lien, type of lien, and an optional broker comment explaining the disclosure. There is no mechanism or process currently available which allows advisors not to disclose a tax lien without violating FINRA s rules. Many advisors believe that, if they pay the entire balance which resulted in the lien, they have resolved the problem and need not disclose the lien. Unfortunately, paying off the tax lien entirely neither eliminates the need to disclose it, nor does it result in removal of the disclosure from an advisor s BrokerCheck profile and U4. However, paying off the tax lien will result in the IRS issuing a release the tax lien. A lien release issued by the IRS results in an additional event in the advisor s history; namely, the release of the lien. Nonetheless, a released lien will have no impact on the sale of real property and give the advisor s credit score a small boost. However, a released, satisfied, or discharged lien will remain on the advisor s BrokerCheck profile and U4. Who Do We Help? We serve two subsets of advisors who benefit the most from our representation (our services) 1) Advisors with tax lien disclosures currently on their U4 and BrokerCheck profile. 2) Advisors that did not pay the entire balance due when filing their tax returns or know of a pending tax accrual.

How Can We Help? Tax lien removal entirely from the public record, your U4, and your BrokerCheck profile. Reduction in amount needed to satisfy the outstanding balance or refund of a portion of what you paid to satisfy a prior lien. Taxpayer Representation Tailored To Advisors: a.) Understanding the fluctuations in your income, and the variability of that income. b.) Communicating with compliance departments, preparing DRP s for updating your U4, and drafting broker comments consistent with regulatory requirements. c.) Utilizing statutes, precedents, and rules which apply specifically to advisors. What s Our Process? Understanding which solutions are most viable is of paramount importance to AdvisorLoans. As such, we begin our relationship with our clients by conducting a thorough review of the advisor s tax history. This is done prior to any financial obligation or commitment by the advisor. The benefit of this approach is that we can take an assessment of the circumstances prior to promising results, which may or may not be attainable. Once we have completed our review, we provide a comprehensive summary of his or her tax history as well as a precise pathway to reach the desired and attainable outcome. The pathway also serves as a firm quote for the work contained therein. The advisor may then engage us to execute the plan provided.

FINRA'S EXPANDED TAX LIEN ENFORCEMENT SUSPENSIONS & REVOCATIONS The Wall Street Journal first reported the impact of this heightened enforcement on advisor s licensure in July of this year. The monthly Disciplinary Action Reports ( DAR s ) published by FINRA clearly show an increasing trend in both the length of suspensions and the total number of advisors whom are being suspended solely due to mishandling the disclosure of tax liens. [All data is from the FINRA published Disciplinary Action Reports ( DAR s ) which are posted both monthly and quarterly on their website. The DAR s provide details of actions taken by FINRA against firms and individuals for violations of FINRA rules; federal securities laws, rules, and regulations; and the rules of the MSRB. The above is a summary comprised of all monthly DAR's since January of 2012 for individuals disciplined for tax lien disclosure violations (excluding state lien only violations), and containing no additional violation (e.g., non disclosure of bankruptcy, late or not reporting of customer compliant, late or not reporting a criminal charge or conviction, etcetera).] FINES On the right is a graph of fines issued to advisors for improper disclosure of tax liens from 2012 through November of 2015. The graph does not include fines for any violations other than improper tax lien disclosures.

REMOVING U4 DISCLOSURES A substantial part of my job is assisting our clients with cleaning up U4 disclosures. Undisclosed federal and state tax liens can have a drastic negative impact on a Financial Advisors ( FA ) as FINRA has started to crack down on FAs who do not timely update their U4 disclosures per (i) Article V, Section 2(c) of the FINRA By Laws, (ii) NASD Interpretive Material 1000 1 (for the conduct on or before August 16, 2009) and FINRA Rule 1122 (for the conduct on or after August 17, 2009), and (iii) NASD Conduct Rule 2110 (for the conduct on or before December 14, 2008) and FINRA Rule 2010 (for the conduct on or after December 15, 2008). Since I deal with these issues on a daily basis, I like to keep up with FINRA s disciplinary action reports in order to have a clear picture of regulatory trends. Recently, FINRA began to cast a much wider net in order to obtain public information regarding civil and criminal cases along with tax lien filings. In the past, FINRA s search only included the tri county lien search, which only included the neighboring counties in which a person resides in or works in. Today, FINRA searches national databases for state and federal tax liens, which based on the recent data, has been a successful implementation from a regulatory standpoint. The trend is clear in the table below. As documented, the number of undisclosed State and Federal tax liens have increased two fold for individual advisors, while the total number of advisors who were disciplined remained roughly the same or decreased. It appears that FINRA typically fines the advisors somewhere in the neighborhood of $5,000 for undisclosed tax liens and suspends advisors anywhere between three to six months depending on any other disciplinary actions that may have not been disclosed, which typically leads to more substantial fines and suspensions. Based on my research, I believe FINRA will continue this aggressive approach to find and discipline advisors who have failed to disclose tax liens. If you have tax liens which have not been reported on the U4, I suggest you submit an amended U4 as soon as possible in order to avoid the potential fine and/or suspension. If you are worried about the impact a tax disclosures will have on your business, please contact us for a free consultation and comprehensive analysis of your situation.

FINRA S BrokerCheck Push ARE YOU READY? Given the shift we are seeing toward increased transparency and heightened public scrutiny of advisors, now is the time to address tax lien disclosures on your U4. BrokerCheck may not become our industry s version of CarFax but the same theme is being shared: See this report before you proceed! Through FINRA Rule 2210 and a national advertising campaign, FINRA will likely have a significant impact on how investors do due diligence on their current or potential advisor.

NEW REASONS Why advisors Should Clean Up Their BrokerCheck Report ASAP 1. FINRA Rule 2210 On May 28th, FINRA filed a rule proposal to the SEC (Rule 2210 Amendment) requiring broker dealers to include links from their respective homepages and broker profiles to FINRA s own public database; BrokerCheck. The BrokerCheck website contains background information on brokers with active or inactive FINRA licenses. The rule s effective date will be no more than 180 days after the SEC s approval order is published in the Federal Register (published approximately October 15, 2015). FINRA will, contemporaneous with the publication of Rule 2210 in the Federal Register, announce the implementation date of the rule in a Regulatory Notice. FINRA s first filing of this rule occurred in January 2013. After a substantial feasibility analysis stemming from the Financial Services Institute s comments submitted in response to the January filing, the rule was heavily modified before the above mentioned filing in May of 2015. Among provisions eliminated were requirements that links be included in posts to social media sites (e.g., Twitter). As it currently stands, the revised rule contains no requirement that the BrokerCheck link be include on social media sites. In addition, the current rule does not require deep links directly to individuals BrokerCheck profiles; but rather a link to the BrokerCheck homepage. InvestmentNews and WSJ reported on the SEC s approval of the Rule 2210 Amendment on Friday, October 9th and Monday, October 12th respectively. Although no evidence of the SEC s approval has been posted on SEC.gov or FINRA.org as of October 15th, we can expect to see the official release of statements from both in the very near future. 2. FINRA Advertising To Clients To Look Up Your BrokerCheck Report This approval coincides directly with the June 1, 2015 news release issued by FINRA of their very own $3.5 million dollar national advertising campaign promoting BrokerCheck on cable channels including CNBC, Bloomberg, Fox Business, Fox News, ESPN, Discovery, The History Channel, and HGTV. Additionally, a print ad was run in the WSJ. And digital dissemination took place on sites including Bloomberg, CNBC, Fortune, Reuters, TubeMogul, the Undertone Network and WSJ, and search engines Google, Bing, Yahoo, and YouTube.

The Message Of All These Commercials Why would you invest without checking BrokerCheck? Check your broker with BrokerCheck.

TIME IS OF THE ESSENCE Consider that if you pay off the tax lien in full and the IRS releases it, it may take an additional 2 4 months to get it completely removed from your U4 and the public record. Clients and prospective clients of advisors can use BrokerCheck to check your background as an advisor. The report clearly shows licenses held, current and past employers, criminal background, complaints filed, and all tax liens found in the public record including liens which have been satisfied, released, discharged, and unpaid active liens. While some of these factors are permanent entries, most advisors can get their tax liens removed from their U4. Our Tax and Regulatory Division deals with this every day. The bottom line is FINRA is pushing for more BrokerCheck links and spending a lot of money to encourage investors to check out your BrokerCheck report. We suggest advisors consider getting their tax liens resolved and removed from your U4 before the BrokerCheck links and advertising hit full momentum.

DEALING WITH IRS LETTERS Owing money to the IRS increases stress levels stemming from a large tax obligation and can also be downright annoying. Understanding the mail that the IRS sends to your business or residence is crucial. The Service uses 350+ different notices and letters to notify taxpayers regarding various issues. From my perspective, opening IRS correspondence can be the difference between getting the appropriate resolution approved and getting a lien filed against your assets or a levy issued to your bank. If a situation arises where you have decided to take on the IRS yourself, it is imperative that you read each piece of mail the IRS sends. A large percentage of letters that the IRS sends out look threatening and include language that scares taxpayers into taking action. Although a notice may look threatening, it doesn t necessarily mean that your assets will be seized. The following notices are extremely important as they indicate that an IRS levy is imminent or has already happened: *LT1058 CP77 CP90 CP90C CP91 CP92 CP177 *LT11 CP77 CP90 CP90C CP91 CP92 CP177 The bottom two notice types are the most common. Most of these notices have appeal rights to either prevent the levy from happening or to appeal the actual levy which has already taken place. The type of appeal that must be filed depends on the notice itself, therefore, it is difficult to offer a one size fits all solution for every notice. If you have been representing yourself and recently received one of these notices, I strongly encourage you to seek the help of a tax professional. Most appeals must be filed by a certain date and having an appeals hearing can yield costly results, especially when the case is assigned to a Revenue Officer who is difficult to work with.

TELEMARKETER MISREPRESENTATIONS ABOUT TAX LIENS AND LIABILITIES Most firms who specialize in tax liens think that FINRA is a worldwide soccer association or a government agency helping hurricane victims. Most have no idea what your GDC or CRD is, or the difference between the two. Our team of specialists only works with advisors and we have FINRA on speed dial. Ask any telemarketer or firm you are considering detailed questions about their familiarity with your advisory business and FINRA implications. Most firms who specialize in tax liens think that FINRA is a worldwide soccer association or a government agency helping hurricane victims. Most have no idea what your GDC or CRD is, or the difference between the two. Our team of specialists only works with advisors and we have FINRA on speed dial. Ask any telemarketer or firm you are considering detailed questions about their familiarity with your advisory business and FINRA implications.

I ll admit that I am a tax lien legal nerd and actually enjoy helping advisors resolve tax liens and tax liability issues. As an attorney, I believe a consultative and candid approach is best. This is why I compiled a short list of telemarketer misrepresentations and sales pressure tactics you or your clients may encounter. 1. Interest. If a telemarketer says they can lower, remove, freeze, or mitigate the interest accruing on an account in any way, they are lying. Interest rate accruals will follow the Internal Revenue Code Section 6601 and Internal Revenue Manual Part 20, Chapter 2, Section 5 and will continue to accrue even if the taxpayer has made arrangements to repay the liability. However, it is possible to remove the interest that accrued in association with the imposed penalties, if a penalty abatement is granted by the IRS. This is the only exception. 2. Penalty Abatements. Although abatements are granted by the IRS quite often, it is a misrepresentation for a telemarketer to say that it s a slam dunk or we have relationships with IRS employees. Any similar statement is an attempt to mislead. In many cases, the IRS will abate penalties for reasonable cause. Not knowing the cause behind the non payment of taxes, means he or she cannot say, in good faith, that the abatement will be successful. 3. Offer in Compromise. If the sales person is pushing a settlement or Offer in Compromise without knowing the specifics about your financial picture, beware. Offer in Compromise is a mathematical formula which takes into account monthly income, monthly expenses, and available equity in assets. Unless the telemarketer has this information, he or she cannot determine if you would qualify. 4. Lien vs. Levy. Some telemarketers will say that because there was a lien filed, the IRS will now come and take funds from your bank account in a form of a levy. Although they may be right and your bank accounts may be levied if IRS issues are left unaddressed, a lien filed today, does not insure a levy is imminent. 5. Release of levy. Another way sales departments build a sense of urgency is by stating that the levy will be released within 2 hours of retaining their services (if you tell them that you have been levied in the recent past). Although that may be the case, don t let them convince you that it s always a sure thing. It is possible to release a levy in a few hours, but the potential for success depends on many factors, some of which are outside the taxpayer s and representative s control.

PRIMARY WAYS Advisors Can Resolve A Personal Or Business Tax Lien Resolving a tax lien can be a confusing and arduous process. Whether caused from a divorce, death or misunderstanding, a tax lien can delay or prevent loan approvals. Here are 4 primary ways advisors can resolve a personal or business tax lien. 1. If you are able to pay your liability in full: Lien Removal may be requested as early as 30 days from the date of full payment of the balance due. In most cases, A Certificate of Discharge is generated by the IRS systemically within 30 days of the full payment of the balance due. A formal request for a refund of penalties paid may be requested immediately upon processing of the fullpayment of the balance due. 2. If you are unable or unwilling to pay the liability in full: A formal request for a Form 669(D), Certificate of Subordination of Property from Federal Tax Lien, may be made to allow an existing credit facility to be refinanced (the IRS will require proceeds attached to by the lien are remitted to the US Treasury within 30 days of the issuance of Letter 4053 Conditional Commitment to Subordinate Federal Tax Lien). A qualified taxpayer may request to settle the total amount owed through the offer in compromise program. The tax lien will be released by the IRS within the 30 days of the acceptance of the proposal or the last payment toward the agreed upon settlement amount, whichever is later. When the total liability due is below specific thresholds and the taxpayer agrees to a direct debit installment agreement, there is a possibility that the IRS will grant a request for a Certificate of Discharge of the Federal Tax Lien.

3. Waiting until the Collection Statute Expiration Dates ( CSED s ) passes: The IRS has 10 years from the later of the filing date or assessment date for tax returns with balances due. However, several events will toll the CSED s; meaning, they will stop the clock temporarily and extend the actual expiration date by the amount of time for which the tolling lasts. Waiting for CSED s to pass while the taxpayer is NOT protected from enforcement action is a very high risk tactic and AdvisorLoans does not encourage our clients to take this approach unless very specific circumstances exist. Systematic Discharge/Release of lien occurs upon reaching the CSED associated with the Federal Tax Lien. 4. Call AdvisorLoans: AdvisorLoans can help if a tax lien is stopping you from qualifying for the loan you need. We are in house and full service, helping you navigate the appropriate strategy and process through resolution. Call AdvisorLoans if you prefer to have a tax lien professional help you with affordable and personalized support in removing tax liens. (844) 229-2553 AdvisorLoans.com