On November 28, 2023, the U.S. Tax Court (Court) issued a significant ruling in Soroban Capital Partners, LP v. Commissioner (Soroban), which portends to widen the applicability of self-employment taxation to state law limited partners of flow-through operating businesses, such as private fund managers. In denying the taxpayer’s motion for summary judgment, the Court ruled that the determination of who constitutes a “limited partner” for purposes of the exception to self-employment taxation requires a “functional analysis test.” Before this ruling, many taxpayers – including numerous private fund managers organized as state law limited partnerships – expected the limited partner exception to apply to partners who qualify as “limited partners” for state law purposes. It remains to be seen what factors the Court will consider for purposes of a functional analysis test. This guest article by Schulte attorneys David S. Griffel, David S. Wermuth and Sarah J. McNeill explains how Soroban may affect how fund managers structured as limited partnerships will report their income for self-employment tax purposes for tax years 2023 and beyond. See “Key Tax Issues Fund Managers Must Consider” (Jun. 10, 2021).