The US Tax Court has held that the state-law limited partners of a partnership are not necessarily “limited partners” at all in the sense embedded in the Internal Revenue Code, section 1402(a)(13). Accordingly, they are subject to taxation at the higher levels applicable to the self-employed.
In a ruling in December related to Denham Capital Management, which arose from taxpayers’ petition in response to an adverse IRS finding, the court found partners who work actively for the partnership, as by planning strategy or managing the portfolio, are self-employed.
