direct participation programs

Question 1

what is a direct participation program (DDP)?

Answer 1

-it is a business structure that reports to the IRS but is not taxed as a business entity

Question 2

all tax consequences of DDPs flor through to?

Answer 2

owners

Question 3

what is reportable to the IRS?

Answer 3

income

Question 4

what is deductible to the IRS?

Answer 4

expenses

Question 5

investments in partnerships are considered to be?

Answer 5

illiquid (not easily transferable)

Question 6

describe partnership dissolvement

Answer 6

• dissolves on predetermined date
• assets are liquidated
• proceeds distributed to partners

Question 7

describe general partners

Answer 7

• unlimited liability (can lose more than invested)
• fiduciary responsibility to investors (can be sued)
• may not compete with the partnership

Question 8

describe limited partners

Answer 8

• two or more owners
• no management responsibility
• limited liability (cannot lose more than invested)
• no fiduciary responsibility

Question 9

describe raw land real estate programs

Answer 9

-appreciation only objective

Question 10

describe new construction real estate programs

Answer 10

• no immediate cash flow

- appreciation major objective

Question 11

describe existing properties real estate programs

Answer 11

-immediate cash flow potential

Question 12

describe government assisted housing real estate programs

Answer 12

• tax credits

- minimal appreciation and cash flow potential

Question 13

describe equipment leasing programs

Answer 13

• airplanes, railroad cars, computers, etc

- high depreciation potential

Question 14

describe oil and gas drilling: exploratory

Answer 14

• drilling in new areas

- high risk and reward

Question 15

describe oil and gas drilling: developmental

Answer 15

-drilling in areas where resources have been previously found

Question 16

describe oil and gas drilling: balanced

Answer 16

• buying existing producing wells
• immediate production and income
• safest of all oil and gas partnerships

Question 17

describe disproportionate sharing arrangements

Answer 17

-the split of income and expenses between general and limited partners

Question 18

describe beneficial tax considerations

Answer 18

• cost recovery systems
• tax credits
• losses flow through to investors

Question 19

describe risks relating to taxes of DDP

Answer 19

-IRS audits

Question 20

who are DDPs suitable for?

Answer 20

• investors who understand and can afford the capital risk associated with different types of programs
• investors who position themselves to benefit from the tax consequences associated with different programs

Question 21

what is an REIT?

Answer 21

• real estate investment trust

- invest in portfolio of operating real estate