Products & Their RisksQuestion 103 of 398
A key tax feature of a direct participation program (DPP) is that it:
a.Is taxed as a corporation, paying entity-level income tax
b.Guarantees investors a fixed dividend regardless of results
c.Passes income, gains, losses, and deductions directly through to the investors
d.Provides interest that is exempt from federal income tax
Explanation
A DPP, typically structured as a limited partnership, is a flow-through (pass-through) entity: it pays no tax at the entity level, and its income, gains, losses, and deductions flow directly to the investors' individual tax returns. This flow-through of tax items, along with potential deductions, is a defining feature of DPPs.
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