Overview
- On Jan. 16, 2026, the Fifth Circuit defined a limited partner as one with limited liability in a state‑law limited partnership and remanded Sirius Solutions to the Tax Court.
- The ruling forbids the IRS from denying the Section 1402(a)(13) exclusion based solely on a partner’s participation, though guaranteed payments for services remain taxable.
- The decision controls in Texas, Louisiana and Mississippi, creating planning and potential refund opportunities there subject to filing deadlines.
- The court declined to say whether the exclusion applies to owners of other entities such as LLCs or LLPs, leaving those questions for future cases and state‑law analysis.
- On remand the IRS can challenge characterizations such as guaranteed payments, partner status under state law, or allocations, and parallel cases in other circuits could produce a split and eventual Supreme Court review.