ByKelly Phillips Erb,
Forbes Staff.
What is a limited partner? That’s exactly the question tackled by the Fifth Circuit in a recent tax dispute. While the case looked like a routine partnership-level tax matter, the opinion dove into the definition of a limited partner, treating it as a question of legal status, not day-to-day activity.
There has long been disagreement over how far the “limited partner” exception to self-employment tax in the tax code actually goes. The statute draws a clear line: a limited partner’s share of partnership income is generally excluded from self-employment tax, except for guaranteed payments. But the IRS has argued that what matters is what partners actually do, including how involved they are in the business, how much control they have over operations, and whether they really look like investors.
Sirius Solutions is a business consulting firm organized as a limited liability limited partnership (LLLP) in Delaware with an office in Houston, Texas. Like many partnerships, it has a general partner (GP), with individual partners holding limited partner (LP) interests.
