Appellate Ruling Poised to Spark Self-Employment Tax Refund Wave

Ultra-wealthy partnerships in certain states have a new opportunity to seek retroactive refunds thanks to a recent Fifth Circuit court ruling that broadened a self-employment tax exception, though taxpayers in other regions of the US must wait to see if other courts follow suit.

A divided US Court of Appeals for the Fifth Circuit panel held that limited partners under state law can be exempt from self-employment taxes on their distributive shares of income. The Fifth Circuit in Sirius Sols. LLLP v. Commissioner rejected a narrower functional analysis test by the US Tax Court that examines passive investors on a ...