On January 16, 2026, the Court of Appeals for the Fifth Circuit (Fifth Circuit) issued a pivotal ruling in Sirius Solutions, L.L.L.P. v. Commissioner (Sirius Solutions), reversing a prior decision of the Tax Court and delivering certain private fund managers a welcome outcome on an issue impacting their limited partners. In a 2‑1 decision, the Fifth Circuit held that, for purposes of the exception to self-employment tax under Section 1402(a)(13) of the U.S. Internal Revenue Code of 1986 (Code), “a limited partner is a partner in a state-law limited partnership that is afforded limited liability.” Accordingly, the Fifth Circuit rejected the Tax Court’s position, first articulated in its 2023 decision in Soroban Capital Partners v. Commissioner, that the self-employment tax exception is reserved for “passive investors” determined using a “functional analysis” test. This guest article by McDermott Will & Schulte attorneys David S. Griffel, David S. Wermuth and Lauren E. Exnicios examines the Sirius Solutions decision, discusses relevant cases pending in other circuit courts and presents the key considerations for private fund managers in light of these cases. For the history of Section 1402(a)(13), see “IRS Wins Round One Over Meaning of ‘Limited Partner’ for Self-Employment Income Purposes” (Feb. 15, 2024).