Series 7- Direct Participation Programs

As a requirement of investing in a particular business investment, your customer has just signed a statement attesting to his annual income, net worth, and affirming that the risks associated with the investment are understood. The signed statement, once submitted with the intended investment amount, will either be approved or disapproved. Approval allows the investor to subscribe to the investment. Which of the following investments would have such a requirement?

A direct participation program. Investors purchasing limited partnership participations or DPPs are required to sign a subscription agreement. In part the investor would be attesting to annual income, net worth and that they understand the risks associated with the type of program they are investing in. While suitability would be a factor for each of the investments listed, they do not require this type of statement be signed by the customer.

Who registers the securities and packages the program for a limited partnership?

A syndicator handles the registration of the limited partnership units.

A taxpayers most adventageous benefit is

A tax credit reduces a person's tax liability dollar for dollar. Deductions, depreciation and depletion reduce taxable income.

Working Interest in Oil and Gas Partnership.

A working interest is a right to revenues from production, but it also carries the responsibility for extraction costs. A royalty interest carries no responsibility for extraction costs.

A general partner may do all of the following EXCEPT: -make general management decisions regarding the partnership. -act as an agent for the partnership in managing partnership assets. -borrow money from the partnership. -sell property to the limited partnership.

Borrow Money from the partnership. All these situations offer the potential for conflicts of interest. However, the general partner is not forbidden by law to engage in any of these acts, except for borrowing money-the general partner may never borrow money from the partnership.

The principal tax benefit of investing in an exploratory oil and gas drilling program is derived from:

Intangible drilling costs (IDCs), which are a significant portion of all drilling costs, are a major tax advantage to a limited partner and are tax deductible in the year in which they are incurred. IDCs are costs that, after incurred, hold no salvage or ongoing value. Examples are labor and geological survey.

A customer with a moderate income from a secure job is in the 28% tax bracket. She has a small diversified portfolio and has $10,000 she would like to invest in a limited partnership. If she is willing to accept only a moderate amount of risk, which of the following limited partnerships would be the most appropriate recommendation?

Oil and gas indole program. The customer is not in a high tax bracket and would not be able to take full advantage of the tax benefits produced by an exploratory oil and gas program or by new construction real estate limited partnerships. A raw land real estate partnership is usually speculative. Of the answers listed, the income and moderate risk from an oil and gas income program would be of greatest benefit to this investor.

All of the following would flow through as a loss to limited partners EXCEPT: -principal repayment on recourse debt. -interest payments on recourse debt. -accelerated depreciation. -depletion.

Principal payments.Principal repayments are not deductible for tax purposes. The interest is deductible.

If a customer subscribes to a $20,000 public limited partnership interest, which of the following is the maximum underwriting compensation that may be charged?

The FINRA rules for limited partnership offerings limit underwriting compensation to 10% of the total money raised (10% of $20,000 is $2,000).

The document attesting to the formation of a limited partnership, filed with designated authorities, is called:

The certificate of limited Partnership Act. The Uniform Limited Partnership Act requires that two or more persons sign and swear to a certificate of limited partnership. It is filed with the state and is a public document available for review.