McDermott Will & Schulte attorneys examine limited partner tax rulings in Hedge Fund Law Report

David Griffel, David Wermuth, and Lauren Exnicios authored an article for Hedge Fund Law Report examining recent court decisions on the limited partner exception to self-employment tax and their implications for fund managers.

The article explores the Fifth Circuit’s decision in K Alain and the Second Circuit’s decision in Soroban, which rejected reliance solely on state law limited partner status to qualify for the exception. The authors discuss the uncertainty that remains over what level and type of involvement in a partnership’s business may disqualify a partner from the exception.

The authors also address considerations for fund managers’ estimated tax payments and return positions, as well as how economic, governance and operational arrangements may affect eligibility for the exception. With further litigation pending, they emphasize the importance of monitoring developments before undertaking structural or reporting changes.

Read the full article in Hedge Fund Law Report: “Limited Partners, Big Tax Questions: K Alain, Soroban and What Comes Next.”