Series 22 Quick Reference

Core Exam Frame

This independent Quick Reference supports preparation for the FINRA Series 22 — Direct Participation Programs Representative Qualification Examination. The exam code is Series 22.

A direct participation program, or DPP, is tested as a security structure that lets investors participate directly in the program’s income, losses, cash flow, deductions, credits, and other tax consequences. The classic exam model is a limited partnership investing in real estate, oil and gas, equipment leasing, or another operating asset program.

DPP Structure and Parties

Limited Partner vs General Partner

Offering and Distribution Workflow

    flowchart TD
	    A[Program formation] --> B[Asset strategy and offering documents]
	    B --> C[Broker-dealer due diligence]
	    C --> D[Customer suitability / Reg BI analysis]
	    D --> E[Delivery or availability of required disclosure]
	    E --> F[Subscription agreement and investor funds]
	    F --> G{Offering conditions met?}
	    G -- Yes --> H[Subscription accepted / investor admitted]
	    G -- No --> I[Funds returned or held per offering terms]
	    H --> J[Operations, K-1 reporting, distributions]
	    J --> K[Disposition, liquidation, or secondary transfer attempt]

DPP Product Selection Matrix

Real Estate Program Reference

Real Estate Formulas

\[ \text{Effective gross income} = \text{gross potential income} - \text{vacancy and credit loss} + \text{other income} \]\[ \text{NOI} = \text{effective gross income} - \text{operating expenses} \]\[ \text{Debt service coverage ratio} = \frac{\text{NOI}}{\text{annual debt service}} \]\[ \text{Capitalization rate} = \frac{\text{NOI}}{\text{property value}} \]\[ \text{Cash-on-cash return} = \frac{\text{annual cash flow before tax}}{\text{cash invested}} \]

Oil and Gas Reference

Oil and Gas Program Comparison

Depletion Concept

Cost depletion allocates the resource property’s basis over units produced and sold.

\[ \text{Cost depletion per unit} = \frac{\text{depletable basis}}{\text{estimated recoverable units}} \]\[ \text{Cost depletion deduction} = \text{cost depletion per unit} \times \text{units sold} \]

Percentage depletion, where available, is based on a statutory percentage of gross income from the resource property and is subject to tax limitations. For exam purposes, focus on the distinction: cost depletion uses basis and units; percentage depletion uses gross income and statutory limits.

Equipment Leasing Reference

Tax Reference: Basis, At-Risk, Passive Loss

DPP tax questions often require a sequence. Do not jump directly from “allocated loss” to “deductible loss.”

    flowchart TD
	    A[Investor allocated income, loss, deduction, or credit] --> B{Enough tax basis?}
	    B -- No --> C[Loss suspended by basis rules]
	    B -- Yes --> D{Enough at-risk amount?}
	    D -- No --> E[Loss suspended by at-risk rules]
	    D -- Yes --> F{Passive activity limits allow use?}
	    F -- No --> G[Passive loss suspended]
	    F -- Yes --> H[Currently deductible subject to other tax rules]

Basis Formula

[ \text{Adjusted basis} = \text{initial capital contribution}

• \text{additional contributions}
• \text{share of taxable income}
• \text{share of tax-exempt income}
• \text{increase in share of liabilities}

• \text{cash distributions}
• \text{share of losses and deductions}
• \text{nondeductible expenses}
• \text{decrease in share of liabilities} ]

Amount Realized and Gain

[ \text{Amount realized} = \text{cash received}

• \text{fair market value of property received}
• \text{liability relief} ]

[ \text{Taxable gain or loss} = \text{amount realized}

• \text{adjusted basis} ]

Deduction vs Credit

\[ \text{Tax savings from deduction} = \text{deduction} \times \text{marginal tax rate} \]\[ \text{Tax savings from credit} = \text{credit amount, subject to applicable limits} \]

Tax Treatment Table

Suitability and Best-Interest Decision Points

For Series 22, suitability is not just “customer has money.” The representative must understand the product, the customer, the concentration risk, and the tax/liquidity profile.

Suitable vs Unsuitable Scenario Cues

Regulatory and Sales Practice Reference

Broker-Dealer Due Diligence Checklist

Communications and Disclosure Traps

High-Yield Distinctions

Common Calculation and Logic Traps

Final Review Checklist

Before answering a Series 22 question, identify:

1. Entity form: limited partnership, LLC, REIT, MLP, corporation, or private placement?
2. Investor role: limited partner, general partner, manager, sponsor, or creditor?
3. Program objective: income, appreciation, tax credits, deductions, or speculation?
4. Asset class: real estate, oil and gas, equipment leasing, or other operating program?
5. Liquidity: transferable, restricted, exchange-traded, or no practical market?
6. Tax sequence: allocation, basis, at-risk, passive loss, recapture.
7. Cash source: operations, reserves, borrowing, refinancing, or return of capital?
8. Debt type: recourse, nonrecourse, leverage level, maturity, and refinancing risk.
9. Customer fit: risk tolerance, horizon, liquidity need, tax use, concentration, understanding.
10. Disclosure quality: fees, conflicts, assumptions, sponsor track record, and risk balance.

Practical Next Step

Use this Quick Reference as a drill sheet: work mixed Series 22 practice questions on DPP structure, tax-basis changes, passive loss limits, offering documents, suitability, and communication traps until you can identify the tested issue before doing any calculation.