What I don't understand...

Is when doing an IPS, at what point do I gross-up income requirements to include impact of taxes, and when do I ignore the whole tax thing? ie - in the first question of the 2009 essay exam, we have to gross up the income from the portfolio to include taxes. But in other examples in the CFA EOC questions, that’s not taken into consideration at all (pg 150, question 11 - Mark & Andrea Mueller). It seems arbitrary to me… personally I’d prefer to avoid the whole tax thing altogether - but if I have to do it, I’d like to be able to know when it should be applied and when it should be ignored. Help?

I also only cottoned onto this recently and asked the question which had apparently already been asked a couple times and debated at length - search the forum and you’ll find some past chats. As far as I can tell from reading the opast debates, it has to do with whether the portfolio is a TDA one or not. Unfortunately they do not explicitly state this in the Q’s so we need to look out for statements like “the withdrawals from the portfolio will be taxed at X%” as this signals that only withdrawals will be taxed rather than the appreciation and income within the portfolio (as with a TDA) So, if it’s a TDA then you gross up spending requirements and then pre-tax it and then add inflation (i.e. inflation does not get grossed up by tax as not taxed) Not sure if that makes any sense… Maybe someone else has better input…