This is an update to our eAlerts of August 20, 2026 and January 27, 2026.
The Second Circuit Court of Appeals has issued its decision in Soroban Capital Partners LP v. Commissioner and affirmed the Tax Court’s narrow interpretation that a partner’s role must be fundamentally passive in order to qualify as a “limited” partner exempt from self-employment tax.
In so holding, the Second Circuit declined to follow the Fifth Circuit’s approach in K Alain, L.L.L.P. v. Commissioner but suggested that as a practical matter the same result – i.e., purported limited partners who actively participated in management and operations were liable for self-employment tax – might follow under either test.
It remains to be seen whether the U.S. Supreme Court concludes that there is indeed a circuit split requiring it to step in and issue a definitive opinion. And, the First Circuit has yet to render an opinion in an appeal from the Tax Court on a similar issue in Denham Capital Management LP v. Commissioner.
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