Exam Series 6 topic 1 question 147 discussion

Actual exam question from FINRA's Series 6

Question #: 147
Topic #: 1

Which of the following actions will result in a taxable event for Tex Payor, an investor in the Invest4U Mutual Fund?
I. Tex sells some of his shares of the fund at a profit.
II. Tex exchanges some of his shares in Invest4U for shares of another fund in the same family of funds.
III. Tex opts to reinvest any dividend or capital gain income he might have received in the fund to buy additional shares of the fund in lieu of receiving a check from the fund.

A. I only
B. I and II only
C. I and III only
D. I, II, and III

Show Suggested Answer

Suggested Answer: D 🗳️
All three selections describe actions that will result in a taxable event for Tex Payor as an investor in the Invest4U Mutual Fund. If Tex sells some of his shares of the fund for a profit, he will earn capital gains, which represent taxable income to him. When he exchanges some shares of Invest4U for another, he is selling shares of Invest4U to reinvest in the other, and the sale of the shares in Invest4U will result in either a capital gain or capital loss that he must report to the IRS. Even if Tex chooses to reinvest the dividend or capital gain income for which Invest4U would have otherwise have sent him a check, he has to pay taxes on the money as though he had received the check.

by lolojepu at April 6, 2025, 1:20 a.m.

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