What Limited Partners Should Know About Soroban

A limited partnership’s distributions to its limited partners are generally understood to be exempt from self-employment taxes under Section 1402(a)(13) of the Internal Revenue Code. 

The United States Tax Court, however, ruled that a functional analysis test must be used to determine whether a party qualifies as a limited partner (for purposes of Section 1402(a)(13)) and, by consequence, potentially eligible for self-employment tax exemption. In the article “What Limited Partners Should Know About Soroban?” featured on the cover of Tax Notes Federal, Smith Anderson tax attorney PJ Cline delves into the Tax Court’s use of a functional analysis test to determine limited partner status in the Soroban Capital Partners LP case. PJ outlines how the use of the functional analysis test may dissuade limited partners from serving on private fund oversight positions—particularly limited partner advisory committees.

A PDF of the full article can be viewed here. 

Please note that this hyperlink is behind a paywall and only Tax Notes Federal subscribers may access the content.

“What Limited Partners Should Know About Soroban,” Tax Notes Federal, June 3, 2024, cover and pp. 1721-1724.