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.
What type of oil and gas program drills for new oil reserves in unproven areas?
Exploratory (wildcatting)
A major advantage to investing in Government Assisted Housing Programs is the availability of _____________.
A major advantage to investing in Government Assisted Housing Programs is the availability of tax credits.
Exploratory drilling is also referred to as _______________.
Exploratory drilling is also referred to as Wildcatting.
The ____________________ is the point at which a program stops losing and starts making money.
The cross-over point is the point at which a program stops losing and starts making money.
____________ Partners are the primary contributors of capital to a limited partnership.
Limited Partners are the primary contributors of capital to a limited partnership.
To become a limited partner, the _______ ________’s signature is required on the Subscription Agreement.
To become a limited partner, the general partner’s signature is required on the Subscription Agreement.
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.
Name the program where the areas to be drilled have not been defined at the time the program is created?
Blind Pool
___________ Drilling Programs drill in proven areas and also look for new oil.
Balanced Drilling Programs drill in proven areas and also look for new oil.
To invest in a limited partnership, an investor must complete the _____________ __________.
To invest in a limited partnership, an investor must complete the Subscription Agreement.
Describe the liability of the two partners in a limited partnership.
General partners have unlimited liability, while limited partners have limited liability.
True or False: Raw land is not a depreciable asset.
True
To whom does the limited partner make her check payable?
The party named in the Subscription Agreement
What is the primary disadvantage to Government Assisted Housing Programs?
The historic lack of potential appreciation
Name some natural resource wasting assets.
Oil, gas, gold, and timber; but not wheat
A general partner would be in violation of a limited partnership if they took what actions? 4
- Admit another general partner,
- change the partnership,
- compete with the program,
- personally use partnership assets
A limited partnership could be formed by a minimum of how many individuals?
Two (one general partner and one limited partner)
True or False: Income Programs purchase already producing wells, but offer few intangible drilling costs.
True
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.
Prior to selling a DPP, passive losses can only be used as deductions against ____________________.
Prior to selling a DPP, 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).
