Series 22: Chapter Three

Chapter Three

Types of Direct Participation Programs

In Chapter 1, we described DPPs as tax shelter programs. Tax shelter programs are investment vehicles whose income is enhanced from special tax treatment. Tax shelters typically require heavy up-front costs, and they often generate little or no income until the program is completed. The tax incentives they receive reduce those initial losses and provide investment incentives for potential members. In Chapter 2, we showed how tax deferrals, conversion, and leverage financing serve to reduce a member’s tax bill.

In the 1960s and ’70s, tax incentives were so inviting that tax shelter programs frequently were begun with no other business purpose than to shelter income from their investors’ other businesses. Investors could save tens or even hundreds of thousands of dollars by red