Direct Participation Programs
In a limited partnership, a general partner's minimum participation in profits and losses is: a. 1% b. 5% c. 10% d. 15%
A. 1% According to tax law, a general partner must have at least a 1% participation in profits and losses for a business to maintain limited partnership status.
Which of the following deductions applies to oil and gas programs, but not to real estate programs. a. Depreciation b. Depletion c. Recapture d. Tax credits
B. depletion Depletion is a deduction available to programs that extract oil and gas and other types of wasting assets. It does not apply to real estate programs.
An investor would NOT purchase an oil and gas limited partnership for which of the following reasons? a. The oil depletion allowance b. Intangible drilling costs c. Tax incentives d. Recapture provisions
D. recapture provisions All of the choices would be reasons for investing in an oil and gas limited partnership except recapture. Recapture is the amount added back to income for tax purposes that was allowed as a deduction in a prior period.
An investor is looking for an investment that will generate deductions but also provide the potential for future cash flow. Which of the following is NOT an appropriate investment? a. A raw land program b. An existing properties real estate program c. An oil and gas drilling program d. An oil and gas exploratory program
A. a raw land program All of the choices provide potential for future cash flow and deductions except for a raw land program. In a raw land program, deductions are negligible and the profit potential comes in the form of capital appreciation, not cash flow.
A limited partner lends money to the partnership. The limited partner will: a. Become a general creditor of the partnership b. Be considered a general partner now c. Lose his limited liability d. Be violating his fiduciary responsibility
A. become a general creditor of the partnership A limited partner is permitted to lend money to the partnership. He will be considered a general creditor since he was a lender.
Which of the following choices is NOT present in an equipment leasing program? a. Depletion b. Depreciation c. Interest expense d. Possibility of recapture
A. depletion Depletion relates to natural resources only (oil and gas, for example).
In a direct participation program, the point at which revenues begin to exceed deductions is known as: a. The cash-on-cash return b. The maximum cash flow c. The crossover point d. Phantom income
C. the crossover point The crossover point is reached when the project's revenues exceed expenses and net income is produced.
Which of the following assets is NOT permitted to be depreciated? a. Equipment b. Furniture and fixtures c. Machinery d. Land
D. land All of the fixed assets listed lose value through usage or wear and are depreciated except land. The Internal Revenue Service does not allow for land to be depreciated.
The largest deduction generated by a DPP in real estate is: a. Depreciation b. Depletion c. Recapture d. Tax credit
A. depreciation The largest deduction in a real estate program is generally depreciation.
An individual who is considering an investment in a DPP should be most concerned with: a. Tax advantages b. Marginable tax rates c. The economic viability of the programs d. The method of depreciation and the possibility of recapture
C. the economic viability of the programs The most important factor for any DPP is whether it is a good investment. The tax-related aspects are only of benefit if the program is economically sound.
A woman with a low income has saved $5,000 to invest for her young son's college education. Which of the following investments would be the MOST appropriate? a. T-bills b. Municipal bonds c. Zero-coupon bonds d. A real estate limited partnership
C. zero-coupon bonds Since the woman has a low income, municipal bonds and limited partnerships would not be of benefit. Since the son is young, a long-term investment would be most appropriate.
A registered representative, when selling a limited partnership, is NOT required to: a. Certify that the customer is an institutional investor as defined by SRO rules b. Certify that she has disclosed that the investment has a lack of liquidity c. Make sure the customer has a net worth to sustain a total loss of the investment d. Make sure this type of limited partnership is suitable for the customer
A. certify that the customer is an institutional investor as defined by SRO rules A registered representative would be required to certify that she informed the customer of all relevant facts relating to the lack of marketability and liquidity of the limited partnership. In addition, after obtaining information about the customer's investment objectives, financial and tax status, other investments, and future financial needs, the RR must have reasonable grounds to believe the customer has sufficient net worth and income to lose his entire investment, or has other liquid assets. The RR must certify that the customer is suitable, and is in a financial position to be investing in this limited partnership. There is no requirement to certify that the customer is an institutional investor. There is a difference between an accredited investor (having at least $1,000,000 net worth or $200,000 of annual income), which is defined under Regulation D, and an institutional investor (a financial institution or an account with at least $50,000,000 of invested assets), which is defined by FINRA.
The member of the limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management is the: a. General partner b. Senior limited partner c. Management committee chosen by the limited partners d. None of the above
A. general partner The general partner is the member of the limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management. Choices (b) and (c) have no bearing on this question.
What information would NOT be found in a subscription agreement in a direct participation program (DPP)? a. The name of the limited partner's certified public accountant b. The suitability standards c. The signature of the limited partner d. To whom the check is made payable to
A. the name of the limited partner's certified public accountant The subscription agreement will normally state the suitability standards for the program, specify who must sign the agreement, specify to whom the check must be made payable, and make inquiries of the purchaser to make sure that he understands the ramifications of the investment and can meet the financial requirements of this investment. The name of the limited partner's accountant would not need to be included in this agreement.
The maximum underwriting compensation for selling limited partnerships in public offerings is: a. 5% b. 10% c. 15% d. 20%
B. 10% The maximum underwriting compensation for selling partnership units in a public offering is 10%. This is based on the gross dollar amount of the units sold. The 10% limit applies to all compensation, regardless of the source, if it is in connection with the offering.
When an investor sells an interest in a limited partnership, her cost basis for tax purposes is the: a. Original investment b. Adjusted basis c. Accredited value d. Original investment plus accretion
B. adjusted basis An investor's basis will be reduced by any claimed losses and any cash distributions. This reduced (adjusted) basis is the cost basis at the time of sale.
For tax purposes, which of the following is NOT deducted from rental income in a real estate program? a. Depreciation b. Maintenance c. Mortgage amortization d. Property tax
C. mortgage amortization Expenses that are deducted from rental income in a real estate program include maintenance, property tax, depreciation, and mortgage interest. Paying off (amortizing) the principal of a mortgage is not an expense and may not be deducted from rental income for tax purposes.
An individual invested $30,000 in an oil and gas balanced program as a limited partner. His portion of a recourse loan is $50,000. Assuming sufficient passive income, the maximum passive losses that a limited partner may claim is: a. $0 b. $30,000 c. $50,000 d. $80,000
D. $80,000 The maximum amount of losses that may be deducted by a limited partner is the extent of his basis (in this question, $80,000). Assuming sufficient passive income, the limited partner may deduct $80,000.
An investor is interested in purchasing an interest in a real estate limited partnership. What step could be taken by an RR to verify the investor's suitability for the investment? a. Refer to the investor's most recent tax return b. Obtain a notarized document which attests to the fact that the investor is an expert in managing real estate c. Obtain executed copies of subscription agreements from other programs in which the investor is a limited partner d. Refer to the completed subscription agreement
A. refer to the investor's most recent tax return When a person invests in a DPP, an RR must verify that the investor meets all of the suitability standards. This verification may be accomplished by referring to the investor's financial documents, such as his past tax return or statement of net worth.
Which of the following parties is subject to the MOST risk in a limited partnership? a. The general partner b. The limited partner c. The underwriter d. The attorney who acts as a legal consultant to the limited partnership
A. the general partner The general partner has the most risk in a limited partnership. The general partner directs all management affairs of the partnership. He is responsible for all the liabilities of the partnership. The limited partner has no management capacity in the partnership. The limited partner's risk is his investment. Most direct participation programs are set up as limited partnerships, which provide for the flow-through of tax consequences and benefits to their investors (limited partners).
Which of the following securities may NOT be purchased in a discretionary account without prior written approval by the customer? a. An exchange-traded fund (ETF) b. An equipment leasing direct participation program (DPP) c. A private activity municipal revenue bond d. The PAC tranche of a collateralized mortgage obligation
B. an equipment leasing direct participation program (DPP) A registered representative may not purchase a direct participation program in a discretionary account without prior written approval by the customer.
A limited partner would be in jeopardy of losing her limited liability if the partner: a. Received a portion of the project's income and deductions b. Assisted in the decision of which properties to acquire c. Insisted on examining the partnership's financial records d. Made a loan to the partnership
B. assisted in the decision of which properties to acquire Limited partners have the right to receive their portion of income and losses, examine books and records, and make loans to the partnership. If they get involved in the management of the program, such as deciding which properties to acquire, they could be considered general partners and lose their limited liability.
A company has chosen accelerated depreciation instead of straight-line depreciation. Which of the following statements is TRUE? a. Earnings are overstated in the early years and understated in later years b. Earnings are understated in the early years and overstated in later years c. Earnings are understated in both early and later years d. Earnings are not impacted by the method of depreciation
B. earnings are understated in the early years and overstated in the later years Accelerated depreciation allows a company to take a larger amount of the cost of an asset as a deduction in the early years and less in the later years. Since large deductions are taken, earnings will be understated (reduced) in the early years. Small deductions in later years will overstate earnings.
A limited partner is considered accepted into a limited partnership when the: a. Limited partner submits a completed subscription agreement b. General partner signs and approves the subscription agreement c. Limited partner submits a check to the general partner d. General partner deposits the limited partner's check in the escrow account
B. general partner signs and approves the subscription agreement The sale of a limited partnership interest is executed by means of a subscription agreement. It is signed by the limited partner, but is not final until the general partner signs the agreement which signifies the acceptance of the limited partner.
During the first year, an investment in an oil and gas drilling program will generate the largest deduction from: a. Depletion b. Intangible drilling costs c. Depreciation d. Oil and gas production
B. intangible drilling costs Intangible drilling costs may be taken as an expense item. Therefore, these costs provide a large deduction in the first year. Depletion and depreciation provide deductions that are spread out over a period of years. Production is an income item, not a deduction.
The major disadvantage to a limited partner in a DPP is: a. Lack of control b. Lack of liquidity c. Flow through of income and expense d. Limited liability
B. lack of liquidity An investor has limited control (management) in equity investments and no control (management) in bond or DPP investments. The major disadvantage of a DPP is the lack of liquidity, meaning that the investor cannot easily sell his portion of ownership.
An investor is a limited partner in a direct participation program that the IRS has determined to be abusive. This investor: a. Will lose his entire investment b. May be subject to pay back taxes as well as penalties and interest c. Will escape all adverse tax consequences due to his limited status d. Will be forbidden by the IRS to invest in any other limited partnerships
B. may be subject to pay back taxes as well as penalties and interest If the IRS deems a direct participation program abusive, deductions previously claimed may be disallowed causing investors to pay back taxes as well as interest and penalties on the back taxes. A DPP may be considered abusive if it is based on a false assumption or if it overstated property values for the purpose of generating large deductions.
All of the following choices are benefits of a limited partnership, EXCEPT: a. Limited liability b. Recapture c. Flow-through of income and expense d. Tax credits
B. recapture Recapture is a situation where tax benefits previously taken should be paid back to the government. This is obviously not a benefit of a limited partnership.
Which of the following choices is NOT considered a tax-preference item when calculating the alternative minimum tax (AMT)? a. Accelerated depreciation in excess of straight-line depreciation b. Straight-line depreciation c. Excess intangible drilling costs d. Excess mining, exploration, and development costs
B. straight-line depreciation Under AMT rules, taxpayers must compute their income taxes twice. An individual subject to the AMT must first calculate his taxes using the standard method, and then he must recalculate his tax liability using the AMT method. The taxes due are the greater of the two calculations. Tax-preference items are used in calculating the alternative minimum tax. Straight-line depreciation is not a tax-preference item.
A limited partner has contributed capital to a direct participation program. Two years later, he extends a loan. Which of the following statements is TRUE if the DPP declares bankruptcy? a. The LP is considered a limited partner for both the capital contribution and the loan b. The LP is considered a limited partner for the capital contribution and a creditor for the loan c. The LP is considered a creditor for the capital contribution and a limited partner for the loan d. The LP is considered a creditor for both the capital contribution and the loan
B. the LP is considered a limited partner for the capital contribution and a creditor for the loan A limited partner who has committed capital may also extend a loan to the partnership. If the partnership declares bankruptcy, the LP will be considered a limited partner for the capital contribution and a creditor for the amount of the loan.
An individual invested $100,000 in a real estate limited partnership. The individual's portion of the income and expenses are as follows. Gross revenue $ 220,000 Operating expenses $ 150,000 Interest on mortgage $ 35,000 Depreciation $ 50,000 The cash flow of the real estate program is: a.+$15,000 b.- $15,000 c.+$35,000 d.- $35,000
C. +$35,000 The income or loss on the project would be calculated as follows. Gross revenue $220,000 - Operating expenses - 150,000 - Interest on mortgage - 35,000 - Depreciation - 50,000 Loss ($15,000) After reducing the gross revenue by all of the expenses listed above you determine the net loss which is $15,000. From the loss you would add back any depreciation expense to determine the cash flow. Depreciation is a non-cash expense and it is added to cash flow. So the $15,000 loss plus the $50,000 in depreciation expense would equal $35,000. Cash flow = Net Income or Loss + Depreciation Expense.
Which of the following securities may NOT be purchased in a discretionary account without prior written approval by the customer? a. An exchange-traded note b. A variable-rate demand obligation c. A direct participation program d. A collateralized mortgage obligation
C. a direct participation program A registered representative may not purchase a direct participation program in a discretionary account without prior written approval by the customer.
Which of the following would increase a partner's basis in a limited partnership? a. Cash distributions b. Losses c. A pro-rata portion of a recourse loan d. Assessments not met by the partner
C. a pro-rata portion of a recourse loan A partner's basis in a limited partnership represents the maximum loss that the limited partner may sustain in the program. It is increased by income, additional contributions made by the partner, and the portion of a recourse loan for which the partner is responsible. The basis is reduced by cash distributions and losses. Assessments not met by the partner normally result in a dilution of the partner's ownership interest.
Which of the following direct participation programs has the highest profit potential? a. An oil and gas developmental program b. An equipment leasing program c. A wildcatting program d. A low-income housing program
C. a wildcatting program A wildcatting program, also called an exploratory program, searches for oil in unproven areas. Although it is considered the riskiest type of oil and gas program due to the high rate of failure, if oil is found, it has the highest profit potential. This is due to the lower cost of acquiring the land. A development program drills for oil in proven, surveyed sites and the cost for the land is greater. Equipment leasing programs and low-income housing are designed to generate income and have the potential for tax benefits.
Which of the following direct participation programs is associated with low costs to obtain the property and high up-front costs? a. An oil and gas developmental program b. An equipment leasing program c. An exploratory oil and gas program d. An income oil and gas program
C. an exploratory oil and gas program A wildcatting program, also called an exploratory program, searches for oil in unproven areas. This results in a lower cost of acquiring the land or mineral rights. In order to extract oil and gas, the program will incur significant start-up or up-front costs. A developmental program drills for oil in proven, surveyed sites and the cost for the land is more expensive. An income oil and gas program acquires interests in already-producing properties. These sites are acquired from oil and gas operators who have completed the drilling and prefer to sell the reserves rather than hold the property for the life of the production. These programs would have higher mineral rights costs and lower up-front costs.
Which of the following investors would be LEAST suitable for an oil and gas direct participation program (DPP)? a. An investor in the highest federal tax bracket b. A retired investor who is in the highest federal tax bracket c. An investor who is concerned about the alternative minimum tax d. An investor who recently inherited $5,000,000
C. an investor who is concerned about the alternative minimum tax An investment in an oil and gas limited partnership may have excess depletion and depreciation as well as excess intangible drilling costs. These are tax preference items and may result in an investor being subject to the alternative minimum tax (AMT). The other investors may or may not be suitable for an oil and gas DPP. It would depend on many other factors. However, an investor concerned about the AMT would not want to invest in a security that normally has tax preference items.
An investor in an equipment leasing DPP would NOT expect: a. Depreciation deductions b. Cost recovery c. Appreciation d. Consistent income from the lease
C. appreciation A DPP equipment leasing program purchases equipment and leases it to a user. The lease provides a consistent income. The limited partnership is permitted to depreciate the equipment. The equipment would not normally increase in value (i.e., appreciation).
A real estate limited partnership that does not specify the actual properties to be purchased is known as a: a. Staged program b. Private placement c. Blind pool d. Section 8 housing program
C. blind pool If a real estate program's prospectus does not specify the actual properties to be purchased, it is known as a blind pool (or nonspecified property) program. An oil and gas program may also be considered a blind pool if the properties to be drilled are not specified in the prospectus.
A direct participation program in real estate does NOT have which of the following characteristics? a. Passive income b. The tax benefit of depreciation c. Cash dividends d. A tax rate on capital gains that is lower than ordinary income
C. cash dividends A direct participation program in real estate, which is also known as a real estate limited partnership (RELP), would distribute either passive income or passive losses. Both depreciation of the buildings and a lower tax rate on capital gains if the property is sold after one year, are characteristics found in any real estate investment. A REIT, not a RELP, pays cash dividends that are taxable at the same rate as ordinary income.
Which of the following choices is available in a direct participation program in oil and gas but NOT in real estate? a. Passive income b. Depreciation c. Depletion d. Interest expense deductions
C. depletion The most advantageous tax benefit that an investor can receive from an oil and gas program is the depletion deduction, which accounts for the use of a natural resource. Depletion is not available in a DPP in real estate. Both types of DPPs may have passive income or losses, depreciation, and interest expense deductions.
Which of the following choices would be the MOST advantageous tax benefit that an investor will receive from an oil and gas direct participation income program? a. Liquidity b. Depreciation of equipment c. Depletion d. Depreciation of land
C. depletion The most advantageous tax benefit that an investor will receive from an oil and gas program is the depletion deduction. These deductions normally last for as long as the program produces oil and gas. Depreciation of equipment lasts a limited number of years and land may not be depreciated.
The Modified Accelerated Cost Recovery System is used when: a. Depleting an oil well b. Valuing inventory c. Depreciating machinery d. Amortizing a bond's premium
C. depreciating machinery The Modified Accelerated Cost Recovery System (MACRS) is one method that may be used to depreciate an asset. It allows for larger deductions during the earlier life of an asset when compared to the straight-line method of depreciation.
Which of the following items is NOT an appropriate asset for an equipment leasing program? a. Computer systems b. Aircraft c. Oil and gas pipe d. Railroad cars
C. oil and gas pipe Oil and gas pipe is not an appropriate leasing item. Unlike the other assets listed, it would be difficult for the bond trustee to seize the oil and gas pipe collateral and resell it to another user in case of a default by the bond issuer.
An investor wishes to buy a limited partnership investment that has the goal of capital appreciation without producing currently taxable cash flow. Which of the following choices BEST suits the investor's needs? a. Low income housing b. Oil and gas income program c. Raw land d. Equipment leasing
C. raw land Raw land will satisfy an investor's need for an investment that has the potential for capital appreciation without producing currently taxable income. However, raw land is not eligible for depreciation deductions or tax credits. Due to the limited benefits, an investment in raw land is considered speculative.
Under the partnership democracy provisions of a limited partnership, the limited partners are NOT permitted to: a. Petition the court to have the general partner removed b. Petition the court to have the partnership dissolved c. Sell assets owned by the partnership d. Sue the general partner
C. sell assets owned by the partnership Selling assets is a management decision and is, therefore, not the role of the limited partners. Democracy provisions would permit the other choices.
An individual invested $30,000 in an oil and gas balanced program as a limited partner. His portion of a recourse loan is $50,000. What is the individual's basis? a. $0 b. $30,000 c. $50,000 d. $80,000
D. $80,000 Under the IRS at-risk rule, an investor may include in his basis those monies for which he is in fact liable. Since the loan is a recourse loan, the investor is liable for its repayment. The investor's basis is, therefore, $80,000 ($30,000 investment + $50,000 recourse loan).
The prospectus for a limited partnership states that the subscription price for each unit is $20,000. According to industry rules, the maximum allowable underwriting compensation for this public offering is: a. $50 per unit b. Subject to the interpretations of the 5% markup policy c. Not subject to any limit but must be fair and reasonable d. 10% of the gross proceeds of the offering
D. 10% of the gross proceeds of the offering Industry rules allow a maximum total underwriting compensation of 10% of the gross proceeds of the offering in a limited partnership. Any subsequent trades that are executed in the secondary market are subject to FINRA's 5% policy on commissions and markups.
A limited partnership would be LEAST suitable for which of the following accounts? a. An institutional account b. A trust account c. A corporate account d. A UTMA account
D. a UTMA account Of the choices listed, a UTMA (custodian or minor's) account would be least suitable for a limited partnership. A limited partnership generally has limited marketability and a lack of liquidity. In addition, most custodian accounts would not be in a position to benefit from the tax advantages of a limited partnership or a DPP.
An investment in which of the following securities requires a customer to sign a statement attesting to her annual income and net worth? a. A variable annuity b. A collateralized mortgage obligation c. A variable-rate demand obligation d. A direct participation program
D. a direct participation program An investor purchasing a limited partnership or DPP is required to sign a subscription agreement. As part of this agreement a customer would be required to sign a statement attesting to her annual income and net worth. In order to be suitable for this type of investment, the customer must meet minimum annual income and net worth requirements. By signing this statement, the customer has acknowledged the information she disclosed is accurate. The other investments do not require this type of statement signed by the customer.
All of the following actions create a conflict of interest for a general partner, EXCEPT if the general partner: a. Accepting a payment not to compete with the program b. Holding partnership monies in his personal bank account c. Selling property that he owns to the partnership d. Lending money to the partnership at prevailing interest rates
D. lending money to the partnership at prevailing interest rates A general partner is not permitted to compete with the limited partnership. Accepting a payment not to compete would be a conflict of interest. Selling property to the partnership is a definite violation of the conflict of interest provisions, as is commingling partnership funds. While partners are not allowed to borrow from the partnership, lending money to the partnership is permitted.
Which of the following choices would be found in the subscription agreement for a direct participation program (DPP)? a. The sharing arrangement between the limited and general partners b. The amount of money that the general partner will contribute to the program c. The provisions for dissolving the partnership d. Who is required to sign this document
D. who is required to sign this document In order to purchase an interest in a direct participation program, the investor must complete the subscription agreement. It will specify who is required to sign the agreement. The other choices given are found in the offering documents.
Upon the sale of a limited partnership interest in a direct participation program, the broker-dealer should have the investor make his check payable to: a. The registered representative who sold the security b. The broker-dealer c. The direct participation program d. Whomever is specified in the subscription agreement
D. whomever is specified in the subscription agreement The subscription agreement will specify the party to whom the check should be made payable.
Which TWO of the following statements are TRUE concerning the tax consequences of investing in a limited partnership or direct participation program (DPP)? I. Tax credits will reduce a customer's taxes directly II. Tax deductions will reduce a customer's taxes directly III. Tax credits will reduce a customer's taxable income IV. Tax deductions will reduce a customer's taxable income
I and IV A tax credit will reduce the amount of taxes owed by a customer directly. A tax deduction reduces the customer's taxable income. A tax credit is more beneficial and may be found in a DPP, which specialized in low income housing. An example of a tax deduction is depreciation and depletion.
Which TWO of the following would be considered the MOST advantageous when considering an investment in a limited partnership? I. Tax deductions II. Tax credits III. Loans secured are non-recourse IV. Loans secured are recourse
II and III Tax credits provide a dollar-for-dollar reduction on tax liabilities whereas tax deductions are used to reduce taxable income. Non-recourse loans are secured by the property owned by the partnership and is not the responsibility of the limited partners, however; recourse loans are the responsibility of the limited partners.
Which TWO of the following choices would NOT be included in a subscription agreement for a direct participation program (DPP)? I. A statement indicating the purchaser understands the risks of this investment II. The priority provisions if the partnership is liquidated III. A statement listing the amount of tax credits or deductions the investor will receive IV. A statement that attests to the investor's ability to meet the financial requirements of this investment
II and III The subscription agreement will normally state the suitability standards for the program, specify who must sign the agreement, specify to whom the check must be made payable, and make inquiries of the purchaser to make sure that he or she understands the ramifications of the investment and can meet the financial requirements of this investment. Priority provisions for liquidating a limited partnership, and the tax implications, would be found in the offering documents.
Which TWO of the following choices would be included in a subscription agreement for a direct participation program (DPP)? I. The priority provisions if the partnership is liquidated II. A statement indicating the purchaser understands the risks of this investment III. A statement listing the amount of tax credits or deductions the investor will receive IV. A statement that attests to the investor's ability to meet the financial requirements of this investment
II and IV The subscription agreement will normally state the suitability standards for the program, specify who must sign the agreement, specify to whom the check must be made payable, and make inquiries of the purchaser to make sure that she understands the ramifications of the investment and can meet the financial requirements of this investment. Priority provisions for liquidating a limited partnership, and the tax implications, would be found in the offering documents.
List from last to first the order of payments if a limited partnership declares bankruptcy. I. Secured creditors II. General partners III. Limited partners IV. General creditors
LAST to FIRST II -> III -> IV -> I general partners -> limited partners -> general creditors -> secured creditors If a limited partnership declares bankruptcy, state law provides a priority for settling accounts. The order for settling accounts is secured creditors, general or unsecured creditors, limited partners, and last, general partners. Remember that this question is asking for the order from last to first.
