IRS Properly Upped Partnership’s Taxable Earnings by $50 Million

Denham Capital Management GP LLC failed to convince the US Tax Court that its limited partners’ earnings should be excluded from self-employment taxes.

The court declined Monday to overrule its November 2023 holding in Soroban Capital Partners LP v. Commissioner that a “limited partner” label doesn’t automatically mean allocated earnings are exempt. That ruling caused consternation among fund managers that the IRS would intensify its efforts to challenge state law limited partnerships.

Under the Soroban analysis, Denham’s partners were “crucial and active parts” of its business, and therefore their distributive shares don’t qualify for the limited partner exception, Chief Judge ...