In some cases, I’ve seen it stated that low-basis holdings should be listed as unique circumstances. In other cases, I’ve seen them listed only under the tax constraint. So which is it? Has anyone come across a concrete solution to this?
I would think it would be under unique as it isn’t really a tax constraint until it is sold. Where have you seen them under taxes? CFAI stuff?
I tend to put the applicable cap gains tax rate in the tax constraint section and then list the low-basis holding under unique circumstances. I think you would be OK listing it under both sections.
The trend is now to put this in tax. They made it a point to stress this at the Schweser 3-day. It was in tax under the CFAI answer key to a recent past exam (leaving it vague so as to not spoil, but I’ll get specific if you want). DEFINITELY TAX CONSIDERATION!
mwvt9 Wrote: ------------------------------------------------------- > I would think it would be under unique as it isn’t > really a tax constraint until it is sold. > > Where have you seen them under taxes? CFAI stuff? CFAI stuff. I put it under unique (based upon other ?'s I’ve done), but the guidance said that it should be under Tax. I read a Schweser explanation in the beginning of the volume 2 exam, and their take was that it used to be considered unique, but now it must be a tax constraint. This is the kind of stuff that drives me crazy.
What Dwight said probably wouldn’t hurt, but in answer key I referenced below, CFAI answer did not include it in unique. I marked myself 0 points for putting it there, b/c they had something else random.
Wow. Glad you brought this up McLeod and thanks for the info ng.
ng30 Wrote: ------------------------------------------------------- > What Dwight said probably wouldn’t hurt, but in > answer key I referenced below, CFAI answer did not > include it in unique. I marked myself 0 points > for putting it there, b/c they had something else > random. Yeah, same here. Their listed ‘unique circumstance’ was really a bit of a stretch.
mwvt9 Wrote: ------------------------------------------------------- > Wow. Glad you brought this up McLeod and thanks > for the info ng. Yeah really. Much appreciated guys!
Since all you allstars are here… Schweser recommends that only time horizon takes account all the different stages of the IPS, where the RR and Tax, liquidity, Leg/Reg and Unique only apply to the first time horizon. Do you think this is the case? Have you seen any examples (especially CFAI) where it wasn’t?
Hadn’t really thought of it that way, but I guess it’s true based solely on the 8 million examples I’ve been through.
mwvt9 Wrote: ------------------------------------------------------- > Schweser recommends that only time horizon takes > account all the different stages of the IPS, where > the RR and Tax, liquidity, Leg/Reg and Unique only > apply to the first time horizon. I agree with the principle of this idea but I don’t think you can apply it across the board. For example unique circumstances often can fall outside of the first time horizon. CFAI EOC Question Vol 2 p 148 - the Muellers -They are retiring in 10 years, and they also receive a $2 million distribution in 10 years. So something like that could fall in a time horizon other than the primary one. I do think that is a good rule of thumb place to start for all of the stages.
Ahh, good call. One recent exam mentioned bequest desires…and their desired terminal bequest amount was factored into the return requirement.
thanks for the thread McLeod. i always though it was unique, but i can see the tax point…and CFAI = law.
This one threw me for a loop because I’ve always seen it stated under unique. Regarding the other constraints, I’ve seen it stated numerous times (in schweser I suppose) that we should only consider the first time horizon unless asked to do otherwise. I’ve seen a couple of cases where they ask for certain constraints in one year (which is sometimes the beginning of the next time horizon), but they would have to specify which period they want.
McLeod81 Wrote: ------------------------------------------------------- > mwvt9 Wrote: > -------------------------------------------------- > ----- > > I would think it would be under unique as it > isn’t > > really a tax constraint until it is sold. > > > > Where have you seen them under taxes? CFAI > stuff? > > > CFAI stuff. I put it under unique (based upon > other ?'s I’ve done), but the guidance said that > it should be under Tax. I read a Schweser > explanation in the beginning of the volume 2 exam, > and their take was that it used to be considered > unique, but now it must be a tax constraint. > > This is the kind of stuff that drives me crazy. yeah. how is there a freaking “trend” in something like this? shouldn’t it always have been either under taxes or unique?
That’s why I f_ing hate IPS. It almost doesn’t matter what you put, because the correct answer is going to be whatever CFAI wants it to be at a given point of time. The justification Schweser gave was: “Now that the L3 curriculum has considerable coverage of low-basis positions and ways to diversify the portfolio in the most tax-efficient manner, that now falls under tax considerations.” … Oh, yeah, that’s exactly what I was thinking while I was taking the test… If CFAI isn’t giving any credit whatsoever for the ‘old’ correct answers in situations like this, they are full of sh!t.
Why can’t they lay out some general guidelines that one can follow for these IPS questions and apply those guidelines on a consistent basis when grading their tests? So much for transparency…
Ok. So there’s an CFAI EOC question regarding a similar situation, but now they are putting the low-basis holding under “unique circumstances” again… What, do we need to put it in both sections and let CFAI pick which one they want? “Unique Circumstances: The large holding of the low-basis stock in Andrea’s company, a “tech company with a highly uncertain future,” is a key factor to be included in the evaluation of the risk level of the Muellers’ portfolio and the future management of their assets.”
argh. i’m just going to do both.