Case: U.S. Court of Appeals Overturns Tax Court, Redefines ‘Limited Partner’ for Self-Employment Tax Purposes

The U.S. Court of Appeals for the Fifth Circuit vacated and remanded the Tax Court’s decision, holding that a “limited partner” under IRC § 1402(a)(13) is a partner in a limited partnership that has limited liability. The court interpreted “limited partner” based on its ordinary meaning at the time of enactment in 1977, looking to contemporaneous dictionary definitions and agency interpretations. The court rejected the Tax Court and IRS’s interpretation that a limited partner must be a passive investor, finding this inconsistent with the statutory text and longstanding agency guidance. The court held that the phrase “limited partner, as such” ...