What is the typical tax treatment for DPPs in relation to passive income?

The typical tax treatment for Direct Participation Programs (DPPs) is that they are taxed at both state and federal levels. DPPs, which often include limited partnerships, allow investors to pass profits, losses, and tax benefits directly to the investors based on their share of the investment. This pass-through nature means investors report this income on their own tax returns, considering both federal and state tax obligations. Passive income generated from these investments does not get taxed at the entity level, but investors must still pay whatever applicable tax at both the state and federal levels on that income. This treatment ensures that investors remain accountable for their share of the income generated by the DPP, rather than the program itself being subjected to double taxation.