chapter 17 Flashcards
Name some of the different types of Direct Participation Programs (DPPs).
General partnerships, limited partnerships, joint ventures, Subchapter S corporations
A limited partnership could be formed by a minimum of how many individuals?
2 - one general partner, one limited partner
What are the two types of partners in a limited partnership?
general partner and limited partner
Describe the liability of the two partners in a limited partnership.
General partners have unlimited liability, while limited partners have limited liability
The _________ partner is in charge of management and decision-making for the partnership.
general partner
What actions are considered a violation for the general partner of a limited partnership?
Admit another general partner, change the partnership, compete with the program, personally use partnership assets
What are some of the acceptable actions for the limited partner?
Inspecting partnership books, suing the general partner, voting on major issues affecting the partnership, competing
What document is filed with the state of legal domicile to create a partnership?
Certificate of Limited Partnership
What does the Partnership Agreement define?
The rights, liabilities, and obligations of each partner
____% of the gross proceeds represents the maximum allowable underwriting compensation for a limited partnership.
10%
To invest in a limited partnership, an investor must complete the _________________________.
Subscription agreement
What does a Limited Partnership’s Subscription Agreement state in regard to a purchaser?
He’s aware of risks, can meet suitability standards, has read disclosure document, and knows the required investment.
To whom does the limited partner make her check payable?
The party named in the Subscription Agreement
To become a limited partner, the __________________’s signature is required on the Subscription Agreement.
general partner’s
A limited partner could lose limited liability status for what reasons?
Taking an active role in the management of the program (hire/fire employees or negotiate contracts)
Over-development and high leverage are the risks associated with a __________________ Program.
new construction
A major advantage to investing in Government Assisted Housing Programs is the availability of _____________.
tax credits
What is the primary disadvantage to Government Assisted Housing Programs?
The historic lack of potential appreciation
What program generates no cash flow and is based on the speculation of land value appreciation?
Raw Land Program
True or False: Raw land is not a depreciable asset.
True
Exploratory Drilling Programs are also referred to as _______________.
Wildcatting
What type of oil and gas program drills for new oil reserves in unproven areas?
Exploratory (wildcatting)
________________ Drilling Programs drill in proven areas.
Developmental
___________ Drilling Programs drill in proven areas and also look for new oil.
Balanced
True or False: Income Programs purchase already producing wells, but offer few intangible drilling costs.
True
What’s the difference between straight-line depreciation and accelerated depreciation?
Straight-line has the same deduction each year, while accelerated has larger deductions in the early years.
__________ is the deduction allowed for naturally wasting assets.
depletion
Name some natural resource wasting assets.
Oil, gas, gold, and timber; but not wheat
Passive losses can only be used as deductions against ____________________.
passive income
True or False: Passive income is income derived from dividends and interest generated by securities in a portfolio.
False. Passive income is derived from an investment in a direct participation program (e.g., limited partnership).
True or False: Investment Tax Credits are applied directly against an investor’s tax liability.
True. Tax Credits provide a dollar-for-dollar tax savings.
What benefit will a tax deduction provide for an investor?
Deductions reduce an investor’s taxable income with a tax savings found by multiplying the deduction by the tax bracket.
What happens when an investor’s passive losses exceed her passive income?
She is able to carry forward the passive losses
The ____________________ is the point at which a program stops losing and starts making money.
cross-over point
When a partner sells his interest in a partnership, what can he do with the remaining losses?
at that point Passive losses can be deducted against any type of income (passive or non-passive).
Name the program where the areas to be drilled have not been defined at the time the program is created?
Blind Pool
True or False: Limited partnership units are illiquid and require permission of the general partner to sell.
True
____________ Partners are the primary contributors of capital.
Limited
What is the order of liquidation for a limited partnership?
1) Secured Creditor 2) General Creditor 3) Limited Partner 4) General Partner
General Partners must contribute at least ____% of the capital.
1%
True or False: DPPs are pass-through investments.
True
What does it mean to say “a limited partnership is a pass-through investment?”
The results of the business venture (profits and losses) flow through directly to the investor.
Is income generated by a limited partnership taxed once or twice?
Only once, and it is at the partner’s level. The program itself is not a taxable entity.
Regarding limited partnerships, what is the difference between a managed and non-managed offering?
Managed use an underwriting syndicate; non-managed offerings use a wholesaler rather than a syndicate.
What is the role of a wholesaler when dealing with limited partnerships?
A wholesaler assists in marketing the partnership to other BDs as well as educating RRs.
