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Emerging Issues and Insights

December 17, 2025

The §1402(a)(13) Appellate Court Battles are Underway

In case you missed it, one of the most contentious issues currently facing partnerships is back in the news. It involves the limited partner exclusion from SE tax under §1402(a)(13) where a taxpayer “wears two hats,” one as a service partner and another as a limited partner. Currently, approximately a dozen related cases are being litigated and are at various stages of the litigation process. In case you missed it, appellate briefs have recently been filed in the First Circuit case of Denham Capital (docket number 25-1349) and the Second Circuit case of Soroban Capital Partners (docket number 25-2079).

On November 26, 2025, the government filed its response to Denham Capital’s opening brief (August 8, 2025), asserting that the decision of the Tax Court (T.C. Memo 2024-114) was correct in that only “passive investors” qualify for the limited partner exception to self-employment tax under §1402(a)(13). The taxpayer in Soroban Capital Partners filed its opening brief on December 8, 2025, setting forth the position that “[t]he Tax Court should have respected the words Congress wrote, not rubberstamped the IRS’s efforts to rewrite them.” The battle lines are clearly drawn and the eventual decisions in these cases likely will be paramount to planning strategies that utilize §1402(a)(13).

January Programs Still Open for Registration
It’s your final opportunity to join us this season for the Tax Planning Forum® (January 13–15) and Fundamentals of Flow-Through® (January 6–8). Both programs will address the highly contested nature of the §1402(a)(13) exclusion for partnerships, featuring updates on current litigation, including Denham Capital, Soroban Capital Partners, and other ongoing cases. Secure your spot today.

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