Article
Second Circuit Furthers Circuit Split By Affirming Functional Test For “Limited Partner” Self-Employment Tax Exception
The Second Circuit has affirmed the Tax Court’s rulings against Soroban Capital Partners LP, holding that the firm’s three principals were not “limited partners” for purposes of the self-employment tax exclusion found in I.R.C. § 1402(a)(13), despite formally holding limited partner status under Delaware law. Under the Internal Revenue Code, a partner’s distributive share of partnership income is generally treated as self-employment income subject to the 15.3 percent self-employment tax on income up to $184,500 in 2026 (2.9 percent rate above that threshold), which funds Social Security and Medicare. Section 1402(a)(13), however, excludes from that tax the distributive share of a “limited partner, as such,” other than guaranteed payments for services rendered.
Liskow & Lewis
