Fund Managers Reel After Court Ruling on Self-Employment Tax

Tax Partner, Dawn Rhea, sat with Bloomberg Tax to discuss recent changes in reporting for limited partners classifying as self-employed on their taxes.

• The definition of a limited partner historically has been complicated and ambiguous, leaving it open to interpretation and more intense IRS scrutiny. The Tax Court opinion concluded that partners who are limited in name only but otherwise active in the partnership aren’t exempt from the self-employment tax on their business profits.
• “There’s a lot of maneuverability but do I think this is going to change behavior? No,” Rhea said. “Do I think it’s going to change the way the firms that prepare these returns, prepare these returns and their appetite for risk on these allocations? Absolutely.”

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