Overview
- In Sirius Solutions v. Commissioner, the court rejected the Tax Court’s passive‑investor, functional test exemplified by Soroban Capital Partners.
- The ruling defines a limited partner by limited liability under state law, not by the partner’s level of participation in the business.
- The opinion expressly addressed only limited partnerships and left open whether members of LLPs or LLCs qualify for the exclusion.
- Guaranteed payments remain taxable, yet the absence of any guaranteed payments in Sirius did not appear to concern the court.
- The outcome is binding in Texas, Louisiana and Mississippi, with related appeals pending in the First and Second Circuits and taxpayers in the Fifth Circuit potentially considering exclusion claims or refunds.