The US Tax Court recently ruled in favor of the IRS in a case involving the limited partner exception to self-employment income. The court found that the taxpayer, who was a limited partner in a real estate partnership, did not qualify for the exception and was therefore subject to self-employment tax on his share of the partnership's income. This decision has important implications for taxpayers who are involved in partnerships and highlights the need for careful tax planning and structuring.
The U.S. Tax Court yesterday issued, at the taxpayer’s request, an order and decision under Rule 251 in favor of the IRS so that the taxpayer may contest the court’s holding in Soroban Capital Partners LP v. Commissioner, 161 T.C. No. 12 (November 28, 2023) in the U.S. Court of Appeals for the Fifth Circuit. Read TaxNewsFlash
The Tax Court stated:
the parties agreed that (1) Soroban Capital was “precedential and applicable to the issues in this case” and (2) the functional analysis endorsed in that case dictated that [the taxpayer]’s “state-law limited partners are not ‘limited partners, as such’ for purposes of [section] 1402(a)(13) and their distributive shares of [the taxpayer]’s ordinary business income are part of net earnings from self-employment under [section] 1402(a).”
The case is: Sirius Solutions LLLP v. Commissioner, Docket No. 30118-21 (November 28, 2023). Read the Tax Court’s order and decision [PDF 177 KB]
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