After the Second Circuit’s decision in Soroban and the Fifth Circuit’s substituted opinion in Sirius Solutions, the limited partner exception for self-employment taxes is narrower. With the First Circuit’s decision in Denham Capital Management still to come, the odds of a Supreme Court ruling on the issue are lower. While there’s some doctrinal gap between Soroban and Sirius, it’s probably not split-y enough to grab the Justices’ attention.

Now that the limited partner world has changed, how are things shaking out? At the Wall Street Journal, Richard Rubin reports on hedge fund managers’ pending and future tax liabilities under the 3.8% Medicare tax for the higher-income self-employed. The twist: if management is what matters under a functional test, then perhaps partners who provide services but do not run the business—think: many law- and accounting-firm partners—might be exempt. There’s significant revenue at stake (and it’s earmarked for health care), but the net effects remain murky.

Bonus (also from Rubin): over the summer, Treasury Secretary Scott Bessent settled his own deficiency on this issue. The reportage, with quotes from taxprofs Karen Burke (Florida) and Walter Schwidetzky (Baltimore), below the fold.

Richard Rubin, Hedge-Fund Managers Lose Out on Lucrative Tax Strategy, Wall St. J. (Oct. 1, 2026):

“The limited partner gambit,” said University of Baltimore law professor Walter Schwidetzky, “is dead.” . . .

“These were easy cases that came up and they were the principals running the business,” said Karen Burke, a tax law professor at the University of Florida. . . .

“You could think of it as a tax increase on the richest taxpayers in the country,” Schwidetzky said. “The IRS gets to book this one as a success. No question here.”

Richard Rubin, Bessent Settles Tax Issue With Federal Government, Wall St. J. (Sept. 30, 2026):

During his confirmation hearing last year, Bessent disputed Democrats’ assertion that more than $900,000 was at stake [in Bessent’s dispute with the IRS over the 3.8% Medicare self-employment tax on his hedge-fund income]. He told lawmakers that he was setting up a reserve fund to deal with the potential tax cost and would respect judicial decisions.

Related TaxProf Blog coverage:

• Second Circuit Affirms Tax Court’s Judgment in Soroban (Sept. 23, 2026)
• Update in the Limited Partner Litigation (Aug. 19, 2026)
• Tax Notes: Soroban Gets Cool Reception on Limited Partner Argument (July 1, 2026)
• Burke: Active Limited Partners Flunk Functional Test (May 9, 2026)
• Updates on the Limited Partner Exception Litigation (Mar. 18, 2026)
• Reflections on the Fifth Circuit’s Ruling on Limited Partner Exception (Jan. 21, 2026)
• NY Times: The I.R.S. Tried to Stop This Tax Dodge. Scott Bessent Used It Anyway (Nov. 19, 2025)