Self-Employment Taxes, Limited Partner Exception: Recent Cases, and Future Regulations

Many entities treated as partnerships are now under attack. The IRS claims that they have incorrectly treated their owners as “limited partners,” thereby allowing them to escape self-employment taxes on their distributions. The partnerships base their positions on a law enacted way back in 1977, which has never been updated. The broad scope of the “limited partner” exception, coupled with governmental inaction over the next five decades and the IRS’ recent Compliance Campaign, has led to chaos. This presentation chronicles the major events culminating in the current Tax Court disputes and forthcoming IRS regulations.