Direct Participation Programs Flashcards
What program generates no cash flow and is based on the speculation of land value appreciation?
Raw Land Program
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.
General Partners must contribute at least ____% of the capital.
General Partners must contribute at least 1% of the capital.
What document is filed with the state of legal domicile to create a partnership?
Certificate of Limited Partnership
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.
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.
Over-development and high leverage are the risks associated with a ____ _____________ Program.
Over-development and high leverage are the risks associated with a New Construction Program.
True or False: DPPs are pass-through investments.
True
What are the two types of partners in a limited partnership?
General partner and limited partner
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.
True or False: Limited partnership units are illiquid and require permission of the general partner to sell.
True
What is the order of liquidation for a limited partnership? 4
1) Secured Creditor 2) General Creditor 3) Limited Partner 4) General Partner
Name some of the different types of Direct Participation Programs (DPPs). 4
- General partnerships,
- limited partnerships,
- joint ventures,
- Subchapter S corporations
What does the Partnership Agreement define?
The rights, liabilities, and obligations of each partner
__________ is the deduction allowed for naturally wasting assets.
Depletion is the deduction allowed for naturally wasting assets.
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)
When a partner sells his interest in a partnership, what can he do with the remaining losses?
Passive losses can be deducted against any type of income (passive or non-passive).
The _________ partner is in charge of management and decision-making for the partnership.
The general partner is in charge of management and decision-making for the partnership.
What are some of the acceptable actions for the limited partner? 4
- Inspecting partnership books,
- suing the general partner,
- voting on major issues affecting the partnership,
- competing
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.
What does a limited partnership’s Subscription Agreement state in regard to a purchaser? 4
The purchaser:
- Is aware of the risks,
- Can meet suitability standards,
- Has read disclosure document, and
- Knows the required investment.
What happens when an investor’s passive losses exceed her passive income?
She is able to carry forward the passive losses.
________________ Drilling Programs drill in proven areas.
Developmental Drilling Programs drill in proven areas.
____% of the gross proceeds represents the maximum allowable underwriting compensation for a limited partnership.
10% of the gross proceeds represents the maximum allowable underwriting compensation for a limited partnership.