chapter 17

Question 1

Name some of the different types of Direct Participation Programs (DPPs).

Answer 1

General partnerships, limited partnerships, joint ventures, Subchapter S corporations

Question 2

A limited partnership could be formed by a minimum of how many individuals?

Answer 2

2 - one general partner, one limited partner

Question 3

What are the two types of partners in a limited partnership?

Answer 3

general partner and limited partner

Question 4

Describe the liability of the two partners in a limited partnership.

Answer 4

General partners have unlimited liability, while limited partners have limited liability

Question 5

The _________ partner is in charge of management and decision-making for the partnership.

Answer 5

general partner

Question 6

What actions are considered a violation for the general partner of a limited partnership?

Answer 6

Admit another general partner, change the partnership, compete with the program, personally use partnership assets

Question 7

What are some of the acceptable actions for the limited partner?

Answer 7

Inspecting partnership books, suing the general partner, voting on major issues affecting the partnership, competing

Question 8

What document is filed with the state of legal domicile to create a partnership?

Answer 8

Certificate of Limited Partnership

Question 9

What does the Partnership Agreement define?

Answer 9

The rights, liabilities, and obligations of each partner

Question 10

____% of the gross proceeds represents the maximum allowable underwriting compensation for a limited partnership.

Answer 10

10%

Question 11

To invest in a limited partnership, an investor must complete the _________________________.

Answer 11

Subscription agreement

Question 12

What does a Limited Partnership’s Subscription Agreement state in regard to a purchaser?

Answer 12

He’s aware of risks, can meet suitability standards, has read disclosure document, and knows the required investment.

Question 13

To whom does the limited partner make her check payable?

Answer 13

The party named in the Subscription Agreement

Question 14

To become a limited partner, the __________________’s signature is required on the Subscription Agreement.

Answer 14

general partner’s

Question 15

A limited partner could lose limited liability status for what reasons?

Answer 15

Taking an active role in the management of the program (hire/fire employees or negotiate contracts)

Question 16

Over-development and high leverage are the risks associated with a __________________ Program.

Answer 16

new construction

Question 17

A major advantage to investing in Government Assisted Housing Programs is the availability of _____________.

Answer 17

tax credits

Question 18

What is the primary disadvantage to Government Assisted Housing Programs?

Answer 18

The historic lack of potential appreciation

Question 19

What program generates no cash flow and is based on the speculation of land value appreciation?

Answer 19

Raw Land Program

Question 20

True or False: Raw land is not a depreciable asset.

Answer 20

True

Question 21

Exploratory Drilling Programs are also referred to as _______________.

Answer 21

Wildcatting

Question 22

What type of oil and gas program drills for new oil reserves in unproven areas?

Answer 22

Exploratory (wildcatting)

Question 23

________________ Drilling Programs drill in proven areas.

Answer 23

Developmental

Question 24

___________ Drilling Programs drill in proven areas and also look for new oil.

Answer 24

Balanced

Question 25

True or False: Income Programs purchase already producing wells, but offer few intangible drilling costs.

Answer 25

True

Question 26

What's the difference between straight-line depreciation and accelerated depreciation?

Answer 26

Straight-line has the same deduction each year, while accelerated has larger deductions in the early years.

Question 27

__________ is the deduction allowed for naturally wasting assets.

Answer 27

depletion

Question 28

Name some natural resource wasting assets.

Answer 28

Oil, gas, gold, and timber; but not wheat

Question 29

Passive losses can only be used as deductions against ____________________.

Answer 29

passive income

Question 30

True or False: Passive income is income derived from dividends and interest generated by securities in a portfolio.

Answer 30

False. Passive income is derived from an investment in a direct participation program (e.g., limited partnership).

Question 31

True or False: Investment Tax Credits are applied directly against an investor's tax liability.

Answer 31

True. Tax Credits provide a dollar-for-dollar tax savings.

Question 32

What benefit will a tax deduction provide for an investor?

Answer 32

Deductions reduce an investor's taxable income with a tax savings found by multiplying the deduction by the tax bracket.

Question 33

What happens when an investor's passive losses exceed her passive income?

Answer 33

She is able to carry forward the passive losses

Question 34

The ____________________ is the point at which a program stops losing and starts making money.

Answer 34

cross-over point

Question 35

When a partner sells his interest in a partnership, what can he do with the remaining losses?

Answer 35

at that point Passive losses can be deducted against any type of income (passive or non-passive).

Question 36

Name the program where the areas to be drilled have not been defined at the time the program is created?

Answer 36

Blind Pool

Question 37

True or False: Limited partnership units are illiquid and require permission of the general partner to sell.

Answer 37

True

Question 38

____________ Partners are the primary contributors of capital.

Answer 38

Limited

Question 39

What is the order of liquidation for a limited partnership?

Answer 39

1) Secured Creditor 2) General Creditor 3) Limited Partner 4) General Partner

Question 40

General Partners must contribute at least ____% of the capital.

Answer 40

1%

Question 41

True or False: DPPs are pass-through investments.

Answer 41

True

Question 42

What does it mean to say "a limited partnership is a pass-through investment?"

Answer 42

The results of the business venture (profits and losses) flow through directly to the investor.

Question 43

Is income generated by a limited partnership taxed once or twice?

Answer 43

Only once, and it is at the partner's level. The program itself is not a taxable entity.

Question 44

Regarding limited partnerships, what is the difference between a managed and non-managed offering?

Answer 44

Managed use an underwriting syndicate; non-managed offerings use a wholesaler rather than a syndicate.

Question 45

What is the role of a wholesaler when dealing with limited partnerships?

Answer 45

A wholesaler assists in marketing the partnership to other BDs as well as educating RRs.