Unit 11 Flashcards
(44 cards)
- A company that sells stock without specifying how invested money will be spent
- A DPP that does not state in advance all of the specific properties in which the GP will invest that partnerships money. At least 25% of the proceeds of the offering are kept in reserve for the purchase of non specified properties
Blind Pool
A transaction involving the combination or reorganization of one or more limited partnerships into securities of a successor corporation
Roll-Up
The money received by a business minus the money paid out. Equal to net income plus depreciation or depletion
Cash Flow
Means there is a potential for returns from cash distributions and capital gains
Economic Viability
Formula for Tax Basis
Investment in partnership + share of recourse debt (+ no recourse debt in real estate DPPs) - cash or distributions
LPs basis consists of
- Cash contributions
- No cash property contributions
- Recourse debt
- Non recourse debt
Represents the upper limit on deductibility of losses
Amount at risk used to determine the gain or loss upon the sale of their partnership interest
Tax Basis
A tax deduction that compensates a business for the decreasing supply of the natural resource that provides its income
Ex: oil, gas, coal, gold
Depletion
- A tax deduction that compensates a business for the cost of certain tangible assets
- A decrease in the value of a particular currency relative to other currencies
Depreciation
Costs incurred that have salvage value. These costs are not immediately deductible but are deductible over several years
Ex: storage tanks and wellhead equipment
Tangible Drilling Costs
In an oil and gas limited partnership, a tax deductible cost. Usually this is for a non physical asset such as labor or fuel that does not depreciate
Has no salvage value
Intangible Drilling Cost
The careful investigation by the underwriting participants necessary to ensure that all material information pertinent to an issue has been disclosed to prospective investors
Due Diligence
A DPP that purchases equipment for leasing to other businesses on a long term basis. Tax sheltered income is the primary objective
Equipment Leasing Limited Partnership
A limited partnership program that invests in producing oil or gas wells for the purpose of generating income and taking advantage of the depletion allowance
Low risk
Income sheltering from depletion allowances
Oil prices; wells stop producing
Immediate cash flow
Income
A limited partnership that drills for oil, gas or minerals in areas of proven reserves or near existing fields
Medium to high risk
Medium intangible drilling costs, immediate tax sheltering
Few new wells produced
Less discovery risk
Developmental
A limited partnership that aims to locate and recover undiscovered reserves of oil, gas or minerals. (Income program)
High risk (most risky)
High intangible drilling costs
Few new wells produced
High rewards for discovery
Exploratory (wildcatting)
A DPP formed to locate new oil and gas reserves, develop existing reserves or generate income from producing wells
Oil and gas DPP
A real estate DPP that aims to provide capital appreciation from historic sites for commercial usage
Similar risk to new construction
Tax credit and deductions for expenses and depreciation
Potential cost overruns
Tax credits for preserving historic structure
Historic rehabilitation structure
A real estate DPP that aims to provide capital appreciation from building new property.
Less risky than new land
Potential cost overruns
Depreciation and expense deductions after completion and income is generated
New construction program
A real estate DPP that sims to provide capital appreciation for low income and retirement housing
Relatively low risk
Tax credits and losses
Low appreciation potential
Tax credits and rent subsidies
Government assisted housing programs
A real estate DPP that sims to provide capital appreciation from existing structures
Relatively low risk
Deductions for mortgage interest and depreciation
Greater maintenance or repair expenses
Immediate cash flow
Existing Property Program
A real estate DPP that aims to provide capital appreciation by investing in undeveloped land
Most speculative
Not considered tax shelter
No income or depreciation deductions
No income distributions or tax deductions
Raw Land Programs
A DPP formed to build new structures, generate income from existing property or profit from the capital appreciation of undeveloped land
Real Estate Limited Partnership
LPs cannot
- Act on behalf of partnership
- Knowingly sign a certificate containing false information
- Have their names appear as part of the partnerships name
