Recent U.S. Tax Court Decision Suggests That Partners of Hedge Fund Management Companies Organized As Limited Partnerships May Be Subject to Self-Employment Tax

The U.S. Tax Court has ruled against a law firm limited liability partnership that had taken the position that its partners were not subject to self-employment tax on their respective shares of partnership income.  The case is relevant to the hedge fund industry because some fund management companies are organized as limited partnerships whose individual limited partners also work for the partnership and render management services.  We summarize the Court’s decision, emphasizing the self-employment tax discussion.

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