Tax insight

Fifth Circuit rejects narrow interpretation of “limited partner” for self-employment tax purposes

Insight
5 minute read
January 22, 2026

What happened?

In Sirius Solutions, L.L.L.P.; Sirius Solutions GP, L.L.C.; Tax Matters Partner v. Commissioner (No. 24-60240), the US Court of Appeals for the Fifth Circuit on January 16, 2026 rejected the Tax Court’s 2023 decision in Soroban Capital Partners v. Commissioner (161 T.C. No. 12) that a limited partner in a state-law limited partnership did not automatically qualify for the Section 1402(a)(13) exclusion from self-employment tax for limited partners. The Soroban decision required an inquiry into the function and roles of the limited partner. The Fifth Circuit rejected the application of a functional analysis test to limited partners in state-law limited partnerships, holding that a limited partner’s eligibility for the exclusion depends solely on whether the partner has limited liability.   

Why is it relevant?

The Fifth Circuit’s interpretation of the statute establishes a bright-line rule that partners in state-law limited partnerships who have limited liability are entitled to apply the limited partner exception to exclude their distributive shares of partnership earnings from net earnings from self-employment, at least for taxpayers in the Fifth Circuit.

Actions to consider

Limited partners in state-law limited partnerships with facts similar to those in Sirius and Soroban should continue to monitor developments in this area and discuss tax reporting with their advisors. Taxpayers outside the Fifth Circuit should continue to consider whether they are passive investors under a functional analysis test.