Fifth Circuit Redefines Limited Partner Test in Tax Case, Withdraws 2026 Bright-Line Rule
Updated
Updated · PwC · Aug 14
Fifth Circuit Redefines Limited Partner Test in Tax Case, Withdraws 2026 Bright-Line Rule
1 articles · Updated · PwC · Aug 14
Summary
A new Fifth Circuit opinion says Section 1402(a)(13) covers a “partner who plays no significant role” in managing or running a business, replacing its earlier liability-based reading.
The court withdrew its prior 2026 ruling that state-law limited partners with limited liability could use the SECA exception without further inquiry, and sent Sirius Solutions back to Tax Court.
That remand leaves Tax Court to decide what counts as a “significant” role, because the appeals court set no clear standard for measuring management or operational involvement.
The shift adds uncertainty to a long-running fight over self-employment tax treatment, moving the Fifth Circuit closer to a functional inquiry while still rejecting the Tax Court’s Soroban framework.