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Fifth Circuit Clarifies Limited Partner Status for Self-Employment Tax Purposes
By Phil Jelsma
SAN DIEGO (March 10, 2026) – The definition of a “limited partner” was the crux of a recent appeals court decision – and the answer could determine how partnerships approach employment tax planning.
In a departure from recent Tax Court precedent, the U.S. Court of Appeals for the 5th Circuit recently held that the federal self‑employment tax exception for limited partners is determined by a partner’s limited liability status under state law, not on the degree of that partner’s day-to-day participation in the business.
Our partner Phil Jelsma recently examined the implications of this important appeals court decision – which underscores the evolving nature of partnership law and partnership taxation – in a recent article published in The Los Angeles Daily Journal and The Daily Transcript.
The full article can be read here (subscriber only).
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