Series 22 Question Bank

A direct participation program is an ordinary business - an apartment block, an oil
well, a fleet of leased equipment - wrapped in a limited partnership so that its income,
losses, deductions and credits pass straight through to the investors instead of being taxed
at the entity first. The Series 22 licenses you to sell interests in those programs. Most
candidates meet the product for the first time in this exam, which is why it feels unfamiliar
even to people who have sold securities for years.

That unfamiliarity, not the length of the exam, is what catches people out. The Series 22
is short: 50 scored questions and 90 minutes. But almost every question assumes you already
know how a limited partnership behaves, who carries the liability, which costs are deductible
and which are not, and why an interest that cannot be sold on next week is not automatically
unsuitable. This guide starts with the product, then works outward to the exam that tests
it.

What exactly is a direct participation program?

The phrase is literal. In a direct participation program the investor participates
directly in the cash flow and the tax items of the underlying business. There is no corporate
layer in between taking a bite of the profits first. FINRA's content outline calls this the
conduit nature of the entity: the program files an informational return on IRS
Form 1065, allocates each partner a share of profits, losses, deductions and credits, and
reports that share to the investor on a Schedule K-1. The investor pays the tax.