Partnership Profits May Be Subject to Self-Employment Tax, Even If You are a “Limited Partner”

If you are a business owner or investor operating through a partnership or LLC, you may be at risk of unexpected self-employment taxes even if your role is labeled as a "limited partner."

A recent Tax Court decision in Denham Capital Management, LP v. Commissioner, T.C. Memo. 2024‑114, underscores this risk. The Court ruled that certain partners could not use the limited partner exclusion under tax law because they were actively involved in the business.