In a rapidly evolving tax environment, few issues have created as much uncertainty in partnership tax law as the scope of the limited partner exception for self‑employment tax.
In an article for Tax Notes Today, Grant Thornton’s Partners Grace Kim and Joe Pacello, along with Senior Manager Whit Cocanower, offer a clear, insightful look (PDF - 1007.23KB) at a debate that continues to shape partnership tax strategy. The authors examine the Fifth Circuit’s recent decision in Sirius Solutions and why it matters now.
Their article, Practical Implications of the Limited Partner Exception After Sirius centers on a pivotal question: Should eligibility for the limited partner exception depend on a partner’s legal status or their level of involvement in the business? The authors walk through the evolution of this issue, contrasting earlier Tax Court decisions that emphasized a functional, activity-based approach with the Fifth Circuit’s interpretation grounded in state law definitions of limited liability.
Beyond the legal analysis, Kim, Pacello and Cocanower focus on what this means in practice, how the Sirius ruling may influence tax reporting positions, planning strategies and structural decisions across partnerships. With ongoing IRS scrutiny and conflicting judicial views, the landscape remains unsettled. For organizations navigating partnership structures and self-employment tax exposure, it provides both context and practical insight into what comes next.
Contacts:
Partner
Washington National Tax Office
Grant Thornton Advisors LLC
Grace Kim has more than 20 years of experience in the area of partnership taxation, which includes IRS, law firm and accounting firm positions. Her diversified experience includes working on a broad range of structuring and operational issues in a variety of industries and areas.
Washington DC, Washington DC
Industries
- Manufacturing
- Energy
- Private Equity
Service Experience
- Strategic federal tax
- Tax Services
Partner, Partnership Tax Solutions
Grant Thornton Advisors LLC
Joseph Pacello is a Partner in the NYC office of Grant Thornton Advisors LLC.
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