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Series 7 > Direct Participation Program > Flashcards

Flashcards in Direct Participation Program Deck (17):
1

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)

2

DPP tax shelter

Taxes according to % ownership

3

DPP K-1

Tax form used to report income and write offs passed through to investor

4

DPP managed offering

Use of wholesaler (syndicate) to find brokerage firm to assist in raising money

5

DPP non-managed offering

GP finds brokerage firm w/o assistance

6

DPP subscription agreement

Application w/payment, used for suitability

7

DPP requirement to keep pass through status

At least 2 of the following:
1. Perpetual life
2. Free transferability
3. Limited liability
4. Centralization of mgt

In order of easiest to avoid to hardest

8

Write offs: business expense, depreciation

1. Straight line- same amount each year
2. Accelerated - front end loaded

9

Types of partnerships

Raw land, new construction, condos, public housing, existing properties, blind pool, historic rehabilitation,

Oil & gas: exploratory (unproven), developmental (proven), income, combo

10

Oil & gas DPP expenses
3 types

1. Functional - GP tangible costs, LP intangible costs
2. Disproportionate - GP small salary but large portion of revenues
3. Reversionary - LP covers all, GP no revenue till LP paid back

11

Oil & gas equipment leasing, 2 types

1. Operating lease- buy and lease short term
2. Full payout - long term lease to own

12

Evaluating a DPP 5 items

Economic soundness
GP expertise
Objectiveness
Start up costs
Revenue

13

Suitability of DPP

Money tied up for long term, cannot accept if unsuitable

For unsolicited order GP makes suitability decision

14

Crossover point

Income exceeds deductions i.e. Profitable

15

Recourse debt

LP personally responsible for debt

16

Non-recourse debt

LP not personally liable for debt

17

Recapture

IRS takes back excessive deductions