Everand Logo

Welcome to Everand!

  • Discover millions of ebooks, audiobooks, and so much more with a free trial

    Only $11.99/month after trial. Cancel anytime.

    Series 22 Exam Review Study Guide
    Series 22 Exam Review Study Guide
    Series 22 Exam Review Study Guide
    Ebook732 pages5 hours

    Series 22 Exam Review Study Guide

    By The Securities Institute of America

    ()

    Read preview

    About this ebook

    Passing the Series 22 Exam-along with the SIE Exam-qualifies an individual to function as an agent of a broker dealer and allows the representative to transact business in direct participation programs, limited sartnerships, limited liability companies and S corporations.

    Created by the experts at The Securities Institute of America, Inc.,

    LanguageEnglish
    PublisherThe Securities Institute of America, Inc.
    Release dateJan 5, 2021
    ISBN9781937841324
    Series 22 Exam Review Study Guide

    Read more from The Securities Institute Of America

    Related to Series 22 Exam Review Study Guide

    Related ebooks

    Business For You

    View More
    View More

    Related podcast episodes

    Related articles

    • Article

      How Community Property Trusts Can Benefit Married Couples

      Sep 18, 2022

      Location, location, location is not just vital in real estate. Where you live also can have critical tax implications for your taxes, especially for married couples. There are two very different kinds of property ownership law for married couples in

      4 min read

    • Article

      Stand Out In A Sea Of Agents

      Mar 31, 2020

      Stand Out In A Sea Of Agents
      3 min read

    • Article

      Stock Market Today: Tech Rallies, Nasdaq Just Shy of New Highs

      Jun 17, 2021

      The Nasdaq Composite pressed higher Thursday, to within just a few points of a fresh closing record, flipping the script on how the technology-heavy index has acted for much of 2021. The Federal Reserve yesterday revealed higher expectations for infl

      2 min read

    • Article

      MONEY Talks

      Jan 20, 2020

      MONEY Talks
      3 min read

    • Article

      Dealmaker

      Sep 16, 2017

      Dealmaker
      2 min read

    • Article

      PODCAST: The Ins and Outs of IRAs with Ed Slott, CPA

      Aug 23, 2021

      Apple Podcasts | Google Podcasts | Spotify | Overcast | RSS David Muhlbaum: Individual retirement accounts. Lots of people have one, but are they getting the most from them? We talked to a master of strategy, Ed Slott, about the ins and outs of IRAs.

      22 min read

    • Article

      How Does a Spendthrift Trust Differ from an Asset Protection Trust?

      Aug 6, 2021

      My clients often want to protect their legacy from their own children’s poor planning or misfortune. A trust offers protections many beneficiaries cannot obtain for themselves from creditor claims, untutored investment choices, overspending and unnec

      3 min read

    • Article

      Are You Ready for Longevity? 4 Steps to Take Now

      Aug 13, 2018

      Did you know that a non-smoking 65-year-old woman today has a 50% chance of living until 88? A non-smoking 65-year-old man has a 50% chance of living until 85? That's how life expectancy works - the longer you live, the more likely you will live lon

      4 min read

    • Article

      Choosing The Right Property Manager

      Aug 1, 2019

      The guiding legislation around residential property management is primarily the Residential Tenancies Act 1986. But that’s not the only legislation landlords need to be aware of when it comes to renting out their properties. The likes of the Human Ri

      3 min read

    • Article

      Get Smart About Social Security

      Nov 1, 2017

      GETTING THE MOST out of Social Security is all about waiting as long as possible to start filing for benefits, right? Not quite—especially if, as a business owner, you get to decide how you are paid. You can actually live on a lot more money in ret

      4 min read

    • Article

      Entrepreneurs Pay Too Much in Taxes Because They Don't Do This

      Mar 29, 2019

      As we head deeper into tax season, we're starting to hear from more and more Americans experiencing sticker shock as they file their returns. Gone is the comforting and often sizable refund check they've come to expect every year. Instead, they're fi

      2 min read

    • Article

      Can You Just Walk Away from a Debt-Riddled Business and Start Fresh?

      May 28, 2020

      In the wake of the coronavirus shutdown, many business owners are under immense financial stress caused by the economic impact of a nearly worldwide standstill. Some may be in or at risk of breach or default. Creditors may be jockeying for payment an

      7 min read

    • Article

      The Best Online Brokers, 2021

      Aug 27, 2021

      Online brokers are enjoying explosive growth as investors beat a path to their virtual doors. In fact, 2020 was a record year: More than 10 million new brokerage accounts were opened, many by first-time investors, according to market research firm J.

      11 min read

    • Article

      Investors Win with New SEC 'Best Interest' Rules on Brokers

      Sep 10, 2019

      The Securities and Exchange Commission (SEC) recently approved a consumer-friendly package of Best Interest Rules that require brokerage firms to disclose potential conflicts of interest when giving financial guidance to consumers. The new requireme

      3 min read

    • Article

      Should Your 401(k) Be ‘Custom Made’?

      Oct 11, 2021

      The term “custom made” has long been associated with the finest products.  But custom-made products aren’t limited to cars, clothes and furniture. In fact, 7% of 401(k) plan participants on Vanguard’s platform have their 401(k) asset allocation custo

      5 min read

    • Article

      5 Quick and Dirty Questions to Pick a Financial Adviser

      Apr 3, 2022

      Registered adviser, fiduciary, independent adviser, investment adviser representative, RIA, licensed, designated, unbiased, what does it all mean?  As an investor seeking an adviser, it can certainly be confounding.  Various types of licenses, design

      3 min read

    • Article

      How to Open a Stock Market Account

      Mar 25, 2022

      A low-cost brokerage account will allow you to buy individual stocks, mutual funds, exchange-traded funds and other investments outside of your employer’s retirement account. You can open an account, deposit money and execute trades online with a com

      4 min read

    • Article

      The Complexity Of Executive Remuneration

      Jun 24, 2019

      A TOPIC that draws mixed opinions, determining executive remuneration, can be a complex process. Typically, the responsibility of a board of directors, it is considered a particularly important duty of their corporate governance. Awarding executive p

      2 min read

    • Article

      The Best Online Brokers and Trading Platforms, 2022

      Aug 26, 2022

      It is understandable if you are paying less attention to your brokerage account these days, given the current market malaise. But the recent slide in stock and bond prices may rep-resent a “generational investment opportunity,” Ron Baron, a manager o

      11 min read

    • Article

      How Should YOU Measure Your Investment Performance?

      Aug 22, 2018

      I've spent over 25 years in the financial advisory profession but recently had a startling realization about investment performance. During a friendly debate with a friend who manages a small-cap mutual fund, I realized even seasoned investment profe

      2 min read

    • Article

      How to Find a Financial Planner You Trust

      Jun 5, 2020

      The coronavirus pandemic touched off increased demand for toilet paper, Clorox wipes, at-home hair coloring kits--and financial advice. A recent survey by the Certified Financial Planner Board of Standards found that nearly 80% of CFPs had seen an up

      7 min read

    • Article

      How to Vet a Financial Adviser

      Apr 5, 2018

      Interview a few advisers before you settle on one. Having conversations with the advisers will also give you a feel for how your personalities mesh. Ask questions, and check out their credentials and disciplinary history, too. Make sure you understa

      1 min read

    Related categories

    Reviews for Series 22 Exam Review Study Guide

    0 ratings

    0 ratings0 reviews

    What did you think?

    Tap to rate

    Review must be at least 10 words

      Book preview

      Series 22 Exam Review Study Guide - The Securities Institute of America

      Seres_22_eCoverSmall.jpg

      SECURITIES INSTITUTE SERIES

      The Securities Institute of America proudly publishes world class textbooks, test banks and video training classes for the following Financial Services exams:

      Securities Industry Essentials exam / SIE exam

      Series 3 exam

      Series 4 exam

      Series 6 exam

      Series 7 exam

      Series 9 exam

      Series 10 exam

      Series 22 exam

      Series 24 exam

      Series 26 exam

      Series 39 exam

      Series 57 exam

      Series 63 exam

      Series 65 exam

      Series 66 exam

      Series 99 exam

      For more information, visit the website at www.securitiesCE.com.

      Copyright © The Securities Institute of America, Inc. All rights reserved.

      Published by The Securities Institute of America, Inc.

      ISBN (Paperback): 978-1-937841-31-7

      ISBN (ePub): 978-1-937841-32-4

      Contents

      About the Series 22 Exam

      About This Book

      Chapter 1

      Definition of Terms

      1031 exchange

      Affiliate

      Agent

      Alternative Minimum Tax AMT

      Applicable trade or business

      At risk

      Boot

      Broker-dealer

      Carried interest

      Cash flow

      Capitalization Rate

      Cash available for distribution

      Certificate of limited partnership

      Closing date

      Control

      Delaware statutory Trust

      Depreciation

      Depletion

      Direct participation program

      Dissenting limited partner

      Equity interest

      Fair-market net worth

      First-user

      Funds From operations

      General partner

      General partnership

      Grantor Trust

      Joint venture

      Limited Liability Company

      Limited Liability Partnership

      Limited Partnership

      Limited Partner

      Limited Partnership Agreement

      Limited Partnership Roll-up Transaction

      Management fee

      Master limited partnership

      Master Tenant

      Modified funds from operations

      Organization and Offering Expenses

      Person

      Participant

      Payout ratio

      Publicly traded partnership/PTP

      Qualified institutional buyer

      Qualified Purchaser

      Real Estate Investment Trust

      Registration Statement

      Security

      Solicitation Expenses

      Sponsor

      Specified Assets

      Subchapter S Corporation

      Subscription Agreement

      Substitute Limited Partner

      Tenants in Common

      Transaction costs

      Triple net lease

      Pretest

      Chapter 2

      Direct Participation Programs

      Limited Partnerships

      Structuring and Offering Limited Partnerships

      Types of Limited Partnerships

      Oil and Gas Sharing Arrangements

      Equipment Leasing Programs

      Tax Reporting for Direct Participation Programs

      Limited Partnership Analysis

      Tax Deductions vs. Tax Credits

      Other Tax Considerations

      Dissolving a Partnership

      Pretest

      Chapter 3

      Additional Types of DPP

      s

      Understanding direct participation programs

      Agricultural Programs

      Cattle and Livestock Programs

      Feedlot Sponsors

      Mortality Insurance and Hedging

      Case Study

      Dairy Farming

      Entertainment Programs

      Equipment Leasing Programs

      Sponsor Compensation

      Case Study

      Structured Finance Programs

      Case Study

      Venture Capital Programs

      Business Development Companies

      Real Estate Investment Trusts/REIT

      Non-Traded Real Estate Investment Trusts

      NAV Real Estate Investment Trust

      Pretest

      Chapter 4

      Issuing Corporate Securities

      The Securities Act of 1933

      The Prospectus

      The Final Prospectus

      Free Writing Prospectus

      Prospectus to Be Provided to Aftermarket Purchasers

      SEC Disclaimer

      Misrepresentations

      Tombstone Ads

      Free Riding and Withholding/FINRA Rule 5130

      Underwriting Corporate Securities

      Types of Underwriting Commitments

      Types of Offerings

      Awarding the Issue

      The Underwiting Syndicate

      Selling Group

      Underwriter’s Compensation

      Private Placements/Regulation D Offerings

      Rule 144

      Private Investment In A Public Equity (Pipe)

      Regulation S Offerings

      Regulation A Offerings

      Rule 145

      Rule 147 Intrastate Offering

      Crowdfunding

      Rule 415 Shelf Registration

      Pretest

      Chapter 5

      DPP Offerings and Suitability

      Private Placement of Securities

      Organization and Offering Expenses

      Underwriting Compensation

      Suitability of Participants

      Failure to Comply

      Fixed-Price Offerings

      Installment Procedures

      Escrow Procedures

      Preparation of Registration Statement Relating To Interests in Real Estate Limited Partnerships

      Use of Proceeds

      Compensation and Fees To The General Partners and Affiliates

      Conflicts of Interest

      Fiduciary Responsibilities of The General Partner

      Prior Performance of The General Partner and Affiliates

      Fees and Compensation Arrangements with Non-Affiliates

      Federal Tax Implications

      Redemption, Repurchase and Right of Presentment Agreement

      Member Private Offerings

      Dissolving a Limited Partnership

      Canceling a Limited Liability Company

      Pretest

      Chapter 6

      Customer Accounts

      Holding Securities

      Mailing Instructions

      Types of Accounts

      Commingling Customers’ Pledged Securities

      Wrap Accounts

      Regulation S-P

      Identity Theft

      Day Trading Accounts

      ABLE Accounts

      FINRA Rules on Financial Exploitation of Seniors

      Pretest

      Chapter 7

      Retirement Plans

      Individual Plans

      Individual Retirement Accounts (IRA

      s

      )

      Traditional IRAs

      Roth IRA

      s

      Simplified Employee Pension IRA (SEP IRA)

      Educational IRA/Coverdell IRA

      Tax-Sheltered Annuities (TSAs)/Tax-Deferred Accounts (TDAs)

      Corporate Plans

      Rolling Over a Pension Plan

      Health Savings Accounts

      Employee Retirement Income Security Act of 1974 (ERISA)

      ERISA 404c Safe Harbor

      Department of Labor Fiduciary Rules

      Pretest

      Chapter 8

      Customer Recommendations, Professional Conduct, and Taxation

      Professional Conduct in the Securities Industry

      Fair Dealings with Customers

      Disclosure of Client Information

      Borrowing and Lending Money

      Gift Rule

      Outside Employment

      Private Securities Transactions

      Customer Complaints

      Investor Information

      NYSE/FINRA Know Your Customer

      Investment Objectives

      Risk vs. Reward

      Alpha

      Beta

      Capital Asset Pricing Model (CAPM)

      Products Made Available through Member Firms

      Recommendations through Social Media

      Tax Structure

      Investment Taxation

      Calculating Gains and Losses

      Cost Base of Multiple Purchases

      Deducting Capital Losses

      Wash Sales

      Taxation of Interest income

      Inherited Securities

      Donating Securities to Charity

      Gift Taxes

      Estate Taxes

      Withholding Tax

      Alternative Minimum Tax (AMT)

      Taxes on Foreign Securities

      FINRA Rule 3241

      Pretest

      Chapter 9

      Securities Industry Rules and Regulations

      The Securities Exchange Act of 1934

      The Securities and Exchange

      Commission (SEC)

      Extension of Credit

      Becoming a Member of FINRA

      Hiring New Employees

      Disciplinary Actions Against a Registered Representative

      Resignation of a Registered Representative

      Continuing Education

      Termination for Cause

      Retiring Representatives/Continuing Commissions

      State Registration

      Registration Exemptions

      Persons Ineligible to Register

      Communications with the Public

      FINRA Rule 2210 Communications with the Public

      Broker Dealer Websites

      Blind Recruiting Ads

      Generic Advertising

      Tombstone Ads

      Testimonials

      Free Services

      Misleading Communication with the Public

      Securities Investor Protection Corporation Act of 1970

      Net Capital Requirement

      Customer Coverage

      Fidelity Bond

      The Securities Acts Amendments of 1975

      The Insider Trading & Securities Fraud Enforcement Act of 1988

      Firewall

      Telemarketing Rules

      Do Not Call List Exemptions

      The Penny Stock Cold Call Rule

      The Role of the Principal

      Violations and Complaints

      Resolution of Allegations

      Minor Rule Violation

      Code of Arbitration

      The Arbitration Process

      Mediation

      Currency Transactions

      The Patriot Act

      U.S. Accounts

      Foreign Accounts

      Annual Compliance Review

      Business Continuity Plan

      Sarbanes-Oxley Act

      The Uniform Securities Act

      Tender Offers

      Stockholders Owning 5% Of An Issuer’s Equity Securities

      Pretest

      Answer Keys

      Glossary of Exam Terms

      About the Series 22 Exam

      About the Series 22 Exam

      Congratulations! You are on your way to becoming a Registered Representative licensed to conduct business in direct participation program securities. The Series 22 exam will be presented in a 50 question, multiple-choice format. Each candidate will have a total of 2 hours and 30 minutes to complete the exam. A score of 70% or higher is required to pass. The Series 22 is as much a knowledge test as it is a reading test.

      Taking the series 22 exam

      The Series 22 exam is presented in multiple-choice format on a touch screen computer known as the PROCTOR system. No computer skills are required and candidates will find that the test screen works in the same way as an ordinary ATM machine. Each test is made up of 50 questions that are randomly chosen from a test bank of thousands of questions. Each Series 22 exam will have several practice questions, which do not count towards the final score. The test has a time limit of 1 hours and 30 minutes, which is designed to provide enough time for all candidates to complete the exam. Each Series 22 exam will be comprised of questions that focus on the following areas:

      How to prepare for the series 22 exam

      For most candidates the combination of reading the textbook and using the exam prep software is enough to successfully complete the exam. It is recommended that the individual spend at least 60 hours preparing for the exam by reading the textbook, underlining key points and by taking as many practice questions as possible. We recommend that a student schedule their exam no more than one week after completing your Series 22 exam prep.

      Test-Taking Tips

      Read the full question.

      Identify what the question is asking.

      Identify key words and phrases.

      Watch out for hedge clauses, i.e., except & not.

      Eliminate wrong roman numeral answers.

      Identify synonymous terms.

      Be wary of changing answers.

      What type of business may be conducted by a series 22 registered representative

      A Series 22 registered representative may conduct business in offering of direct participation programs including:

      Direct participation programs (real estate, oil and gas, and Equipment Leasing)

      Limited Partnerships

      Limited liability companies

      S corporations

      What score is needed to pass the exam?

      A score of 70% or higher is needed to pass the Series 22 exam.

      Are there any prerequisites for the series 22 exam?

      In addition to passing the series 22 exam candidates must also successfully complete the Securities Industry Essentials exam /SIE. Unlike the SIE exam candidates must be sponsored by a finra member firm to take the series 22 exam. You may take either test first but, you must successfully complete both to become registered

      How do I schedule an exam?

      Ask your firm’s principal to schedule the exam for you or provide a list of test centers in your area. You must be sponsored by a FINRA member firm prior to making an appointment. The Series 22 exam may be taken any day that the exam center is open.

      What must I take to the exam Center?

      You should only take a picture ID with you. Everything else will be provided, including a calculator and scratch paper.

      How long will it take to get the results of the exam?

      The exam will be graded as soon as you finish your final question and hit the submit for grading button. It will take only a few minutes to get your results. Your grade will appear on the computer screen and you will be given a paper copy from the exam center. If you do not pass the test, you will need to wait 30 days before taking it again. If you do not pass on the second try, you’ll need to wait another 30 days. After that, you are required to wait 6 months to take the test again.

      About This Book

      The writers and instructors at The Securities Institute have developed the Series 22 textbook, exam prep software, and videos to ensure that you have the knowledge required to pass the test and to make sure that you are confident in the application of the knowledge during the exam. The writers and instructors at The Securities Institute are subject-matter experts as well as Series 22 test experts. We understand how the test is written, and our proven test-taking techniques can dramatically improve your results.

      Each chapter includes notes, tips, examples, and case studies with key information; hints for taking the exam; and additional insight into the topics. Each chapter ends with a practice test to ensure that you have mastered the concepts presented before moving on to the next topic.

      About The Securities

      Institute of America

      The Securities Institute of America, Inc. helps thousands of securities and insurance professionals build successful careers in the financial services industry every year. In more than 25 years we have helped students pass more than 250,000 exams.

      Our securities training options include:

      • Classroom training

      • Private tutoring

      • Interactive online video training classes

      • State-of-the-art exam prep test banks

      • Printed textbooks

      • ebooks

      • Real-time tracking and reporting for managers and training directors

      As a result, you can choose a securities training solution that matches your skill level, learning style, and schedule. Regardless of the format you choose, you can be sure that our securities training courses are relevant, tested, and designed to help you succeed. It is the experience of our instructors and the quality of our materials that make our courses requested by name at some of the largest financial services firms in the world.

      To contact The Securities Institute of America, visit us on the Web at: www.securitiesce.com or call 877‐218‐1776.

      Chapter 1

      Definition of Terms

      1031 exchange

      Internal Revenue Code 1031 allows investors to exchange certain types of properties without recognizing a capital gain or capital loss on the exchange. The property exchange must include properties of like-kind and must be held for investment purposes or for the use in the taxpayer’s business or trade. A 1031 exchange is applicable to investments in real estate. Investments in securities such as stocks, bonds, interest in limited partnerships, or other evidence of ownership interest or indebtedness do not qualify for the 1031 Exchange exemption.

      Affiliate

      An affiliate is an individual who is controlled by or who controls a broker-dealer or a sponsor of a direct participation offering. Your exam may refer to a broker-dealer as a finra member or simply as a member. Affiliates also include:

      A person who beneficially owns or who has the right to acquire 10% or more of the voting interest in a member or a sponsor.

      A person who has the right to vote 10% or more of the voting interest in a member or sponsor.

      A partner, officer, or director of a member or sponsor including individuals providing similar functions at a member firm or sponsor.

      Immediate family members of officers, directors or affiliates as outlined above will also be deemed to be affiliates of the member or sponsor

      Any entity which is owned or controlled by affiliates as detailed above will also be deemed to be an affiliate of the member or sponsor.

      Agent

      An agent or registered representative is a natural person who represents an issuer or a broker-dealer in the purchase and sale or the attempted purchase and sale of securities.

      Alternative Minimum Tax AMT

      The IRS has designed a different set of rules to ensure that high-income earners do not significantly reduce their overall tax liability by taking advantage of certain tax benefits. The Alternative Minimum Tax is designed to ensure that high-income earners pay a minimum amount of tax on their overall income. The AMT is a tentative tax calculated by eliminating or reducing certain exclusions and deductions. Certain tax preference items may be added back to the high-income earner’s taxable income. Tax preference items that may be added back to the income to calculate the alternative minimum tax are accelerated depreciation or depletion, net income from oil and gas, investment tax credits, and interest income on private-purpose municipal bonds such as industrial development bonds.

      Applicable trade or business

      An applicable trade or business is any activity conducted on a regular continuous and substantial basis consisting in whole or in part of raising or returning capital and investing in or disposing of specific assets or developing specified assets.

      At risk

      The term at-risk is used to describe the partner’s capital contribution, plus the partner’s proportional liability for the limited partnership’s or LLC’s liabilities. Qualified non-recourse loans are specifically excluded from the calculation of at-risk.

      Boot

      The term boot is used to describe the value of a non-like-kind property received as part of a 1031 exchange. The fact that the exchange includes a non-like property does not disqualify the exchange, it merely results in a partially tax-deferred exchange. That is to say that the exchange will not be 100% tax-deferred.

      Broker-dealer

      A broker-dealer is a person or a firm that maintains a place of business and effects transactions in securities markets for its own account or for the account of others. A broker-dealer must be registered with the SEC and in the states where they have an office or transact business with retail customers.

      Carried interest

      A carried interest is an interest awarded to the sponsor of the program in exchange for their management of the program. The carried-interest is a participation in the profit or cash flows of the program awarded to the sponsor that have been received, not in exchange for a capital contribution, but in exchange for the efforts of the sponsor.

      Cash flow

      For the purpose of the Series 22 exam, cash flow is cash provided from operations minus expenses, and prior to deducting depreciation, depletion or other non-cash allowances. The deduction of all cash expenses including wages, insurance, debt service, capital improvements, repairs, maintenance and replacements will be made to determine funds from operations. Should the partnership have outstanding leases made to builders, sellers, or other parties, cash flow will also include lease payments received on net leases prior to depreciation.

      Capitalization Rate

      A program’s capitalization rate is a method used to determine the value of a property based on its net operating income. The future cash flows to be received are discounted to a present value to determine an appropriate valuation for real estate. The capitalization rate is determined by dividing the price of the property by its net operating income. Higher capitalization rates imply a higher expected rate of return and imply a higher degree of risk.

      Cash available for distribution

      Cash available for distribution is the amount the partnership has available to distribute to interested parties. Cash available for distribution is the amount generated from cash flow minus any sums that have been set aside for repairs, maintenance, or reserves to provide such repairs and maintenance in the future.

      Certificate of limited partnership

      A certificate of limited partnership must be filed in the state of formation by any limited partnership. A certificate of limited partnership filed with the state will include the name of the partnership, the name and business address of each general partner, the registered office of the limited partnership, the mailing address for the limited partnership as well as the latest date of termination for the partnership. Once a certificate of limited partnership has been filed with the state and the partnership has been formed, many states require the limited partnership to advertise its formation to the public in the newspaper or through other publicly available means. Should any of the above information change, an amendment to the certificate of limited partnership will be filed with the state department.

      Closing date

      The closing date for a limited partnership is the date when the investor’s interest in the limited partnership becomes effective. This date may be the day when the subscription agreement is accepted by the general partner or it may be a date stated in the subscription agreement or in the offering documents.

      Control

      The term control as used in connection with an entity means any person or entity who owns a beneficial interest of 50% or more of the outstanding voting securities of a corporation or has a right to 50% or more of the profits and losses of a partnership or other non corporate entity.

      Delaware statutory Trust

      A Delaware statutory trust/DST is an alternative form of ownership to tenants in common. The Delaware statutory trust is an unincorporated entity or association created by a trust or other controlling agreement. The trust is then operated to own, invest, manage, control, or operate real property or a business interest. The formation of a Delaware statutory trust provides a great deal of flexibility regarding the rights, powers and privileges of both the trustee and the beneficiaries. The parties to the Delaware statutory trust define the relationship, terms and conditions as they so choose. The trust will provide liability protection for both the trustee and the beneficiaries. Unless the controlling document states otherwise, the beneficiaries of the Delaware statutory trust will enjoy the same protection as the stockholders in a corporation. Investors in a DST will receive their proportional distribution of income, gains and deductions. An important feature for this type of trust is that it allows an owner of real property to exchange that property for an interest in the trust without being subject to capital gains tax on the exchange.

      If an investor in real estate has elected to exchange his / her interest in a real property for an interest in a Delaware statutory trust, the investor’s cost basis for the property becomes the Investor’s cost basis for his / her interest in the DST. For example, if an investor has depreciated a $1 million building over the course of many years to $200,000, the investor’s cost basis for the trust would also be $200,000. Many large DSTs are operated by large professional property management companies allowing an investor to enjoy the benefits of real estate investing without the management responsibilities. Some DSTs have certain limitations regarding the operation that investors should be aware of, Including:

      Once the offering of the trust has been closed, the trust may not raise additional funds from current or new investors:

      If the property is sold, the proceeds must be distributed to the participants in the trust and the proceeds may not be reinvested in other properties

      If a mortgage has been obtained to finance property acquisition, the mortgage may not be refinanced. Additionally, the trust may not borrow new funds unless the trust has defaulted on a mortgage or is about to default on a mortgage.

      The trust is required to distribute all income over and above expenses and required operating reserves on a regular basis

      Should any of the limitations place the trust at a substantial risk, the DST may convert to a limited liability corporation in an effort to mitigate the risks associated with the limitations of a Delaware statutory Trust. The limited liability company created during the conversion is known as a springing limited liability company.

      Depreciation

      Depreciation is an accounting method used to amortize the purchase price of an asset over the estimated useful life of the asset. Depreciation is a non-cash charge that reduces the value of a fixed asset on the balance sheet of the entity. The depreciation is then taken as a deduction to taxable income on the income statement. There are several types of depreciation schedules that may be used to reduce the value of an asset over time. Two of the more popular methods are straight-line depreciation and modified accelerated cost recovery. With the straight-line method, the price of the asset is depreciated in equal amounts over its useful life. When modified accelerated cost recovery is used, a large percentage of the asset’s price is recovered in the early years of its use. This creates large deductions in the early years and smaller deductions in later years of the asset’s useful life.

      Depletion

      Depletion is an accounting method used to reduce the value of natural resources carried on the balance sheet. Natural resources such as gas and oil cannot be depreciated; these resources must be depleted. The depletion allowance is used to reduce the value of the reserves to reflect the fact that, at some point, all of the natural resources will have been extracted, and the reserves extinguished. Depletion, like depreciation, is a non-cash charge that reduces the value of the natural resource on the balance sheet with the resulting depletion charge being taken against income to reduce tax liability.

      Direct participation program

      A direct participation program, also known as a DPP or simply as a program, is an entity which provides for the complete flow through of all economic events and tax consequences. For the Series 22 exam, a direct participation program includes any program regardless of its structure, whether a limited partnership, an S corporation, a limited liability company, a business development company or a program that is made up of multiple legal entities or structures. A direct participation program may be formed as the legal entity to distribute interests in agricultural concerns, cattle feeding, cattle growing, oil and gas operations, equipment leasing, real estate development , financing and management, commodity pools, or securities investments. Excluded from the definition of a direct participation program are real estate investment trusts / REITS, corporate pension and profit-sharing plans, individual retirement accounts, tax sheltered annuities, investment companies, and insurance company separate accounts.

      Dissenting limited partner

      Any person who is the owner or holder of a beneficial interest in a limited partnership subject to a proposed rollup transaction in which the partnership will be combining or merging with another limited partnership, who at the time votes are solicited files an objection to the proposed roll up or merger transaction.

      Equity interest

      An equity interest as used in conjunction with a direct participation program refers to any person who has an interest in the capital, profits or losses of that partnership. The term equity interest when used in connection with a corporation refers to anyone who owns the stock of the corporation or who has a right to acquire shares of that corporation. A person will also be considered to have an equity interest in a corporation if that individual owns any security which would give them the right to convert, exchange or exercise another security into the stock of that corporation.

      Fair-market net worth

      A partnership’s fair-market net worth is the total market value of the partnership’s assets minus any outstanding liabilities. The partnership’s fair market net worth is determined based on the fair market value of its assets without regard to the partnership’s actual cost and excluding any tax deductions or depletion allowances taken by the partnership.

      First-user

      First user is a term associated with a depreciation schedule. First user is the first fiscal year when a depreciable asset is put into use and the time when depreciation may begin.

      Funds From operations

      When reviewing the financial performance of a limited partnership, funds from operations will provide investors with the details of the partnership’s economic performance. Funds from operations are calculated by adding depreciation, amortization or depletion allowances back to the earnings of the partnership. Once the appropriate add-backs have been calculated, any capital gains realized on the sale of assets are subtracted to determine funds from operations for the partnership.

      General partner

      The general partner of a limited partnership is the individual or entity who provides management expertise and is responsible for the day-to-day operations of the limited partnership. While the general partner may be a natural person, more often than not the general partner is a corporation or other legal entity that is designed to provide a level of legal protection to the natural persons who operate the partnership.

      General partnership

      A general partnership is a venture between one or more parties and allows all partners to make management decisions and to enter into legally binding contracts on behalf of the partnership. All general partners are jointly and severally liable for all of the obligations of the partnership unless otherwise stated in the partnership agreement. All of the income will be distributed to the partners and the partners will pay taxes on their individual return.

      Grantor Trust

      With a grantor trust, the creator of the trust retains control of the assets in the trust. Grantor trusts may be set up as revocable or irrevocable trusts. In the case of a revocable grantor trust, the creator of the trust is deemed to be the owner of the assets and will report the income on his / her tax return. A revocable trust will also be deemed to be part of the grantor’s estate at the time the grantor passes away. Should the grantor trust be established as an irrevocable trust, the grantor may retain the ability to pass income through to his / her own tax return and the assets will not be deemed to be part of the grantor’s estate, provided the grantor meets certain minimum IRS requirements. The establishment of the irrevocable grantor trust which allows the grantor to retain the income and the assets to be seen as separate from the grantor are sometimes referred to as intentionally defective grantor trusts. The type of grantor trust established will be set forth in the trust instrument or trust deed.

      Joint venture

      A joint venture is a business entity that has been created by two or more parties. The parties to the joint venture share in the ownership, management, returns, and risks of the operation or entity. A joint venture may be an incorporated or unincorporated entity and is usually designed to carry out a particular business goal. Joint ventures are organized on a temporary basis and will terminate upon the completion of the objective or upon agreement of the owners.

      Limited Liability Company

      A limited liability company is a hybrid entity that allows for the flow through of taxes and significant flexibility for the members of the limited liability company. Unlike a limited partnership, where the limited partners are precluded from exercising any management control over the partnership, limited liability company members may operate, manage or control the limited liability company and still enjoy asset protection. The financial and management arrangements agreed to by the members of a limited liability company will be set forth in the operating agreement. The terms and conditions spelled out in the operating agreement are of particular importance to investors who are considering becoming a member of the limited liability company. These financial and management aspects are of particular importance when determining suitability.

      Limited Liability Partnership

      A limited liability partnership, as the name implies, affords the partners protection from liabilities of the limited liability partnership. However, this form of business structure may only be used by professional

      Enjoying the preview?
      Page 1 of 1