Direct Participation Program Flashcards
DPP
Participate in cash flow and write offs of underlying investments
Usually real estate or oil & gas
Always has at least 1 GP (manages) and 1 LP (invest)
DPP tax shelter
Taxes according to % ownership
DPP K-1
Tax form used to report income and write offs passed through to investor
DPP managed offering
Use of wholesaler (syndicate) to find brokerage firm to assist in raising money
DPP non-managed offering
GP finds brokerage firm w/o assistance
DPP subscription agreement
Application w/payment, used for suitability
DPP requirement to keep pass through status
At least 2 of the following:
- Perpetual life
- Free transferability
- Limited liability
- Centralization of mgt
In order of easiest to avoid to hardest
Write offs: business expense, depreciation
- Straight line- same amount each year
2. Accelerated - front end loaded
Types of partnerships
Raw land, new construction, condos, public housing, existing properties, blind pool, historic rehabilitation,
Oil & gas: exploratory (unproven), developmental (proven), income, combo
Oil & gas DPP expenses
3 types
- Functional - GP tangible costs, LP intangible costs
- Disproportionate - GP small salary but large portion of revenues
- Reversionary - LP covers all, GP no revenue till LP paid back
Oil & gas equipment leasing, 2 types
- Operating lease- buy and lease short term
2. Full payout - long term lease to own
Evaluating a DPP 5 items
Economic soundness GP expertise Objectiveness Start up costs Revenue
Suitability of DPP
Money tied up for long term, cannot accept if unsuitable
For unsolicited order GP makes suitability decision
Crossover point
Income exceeds deductions i.e. Profitable
Recourse debt
LP personally responsible for debt
