December 12, 2023
Tax Memo
RE: Soroban Capital Partners LP, Soroban Capital Partners GP LLC v. Commissioner of Internal
Revenue
This is a summary memo regarding the United States Tax Court Decision that was filed November
28, 2023.
The case dealt with the issue of self-employment income reported by limited partners of a
partnership.
On the returns for the years in issue, Soroban reported net earnings from self-employment its
guaranteed payments to its limited partners plus the general partner’s share of ordinary
business income.
The motion before the Tax Court is if the ordinary business income of the partnership should also
be subject to self-employment tax regarding its limited partners.
A partnership is required to include in their calculation of net earnings from self-employment the
distributive share of their partners’ income but there is a limited partner exception. The Tax
Court determined that the limited partner exception was intended to apply to partners that are
passive investors.
The court case could have an impact on some of our LLC and partnership clients. It is a common
practice for individual owners to hold their LLC or partnership interests as limited partners and
not subject them to self-employment tax. This court case may result in having these limited
partners to be subject to self-employment tax on their partnership ordinary business income.
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