Monthly Archives: February 2026

In late January 2026, the Western District of Michigan entered final judgment awarding Perrigo roughly 89 million dollars in tax refunds after rejecting the IRS’s attack on the company’s cross‑border omeprazole structure. The decision, following a detailed September 2025 opinion, offers rare, taxpayer‑friendly guidance on both the economic substance doctrine and Section 482 discounted cash‑flow transfer pricing.

What happened in Perrigo?

Perrigo, a global OTC manufacturer, partnered with unrelated Israeli company Dexcel to bring a generic OTC omeprazole product to the U.S. market under a 2005 supply and distribution agreement. In 2006, Perrigo shifted the contract rights from a U.S. affiliate (L. Perrigo Company, “LPC”) to a disregarded LLC owned by an Israeli partnership, then subcontracted U.S. distribution back to LPC, as part of a broader globalization initiative.

Years later, the IRS audited 2009–2012 and argued that:

·         The intercompany assignment lacked economic substance and should be ignored, and

·         In the alternative, Section 482 allowed the IRS to reallocate virtually all the Israeli entity’s income back to the U.S. entity using an ex‑post DCF analysis.

Perrigo paid the asserted liabilities and filed a refund suit; the court ultimately sided largely with Perrigo, culminating in the January 27, 2026 final judgment.

Economic substance: more than just tax savings

The court found that the contract assignment had real economic substance and was not a sham, even though tax minimization was an important driver. Several facts carried the day:

·         The restructuring was part of a company‑wide globalization strategy for its growing international business, not a one‑off tax play.

·         Perrigo sought and followed sophisticated professional advice in designing the structure.

·         Evidence supported that the assignment actually occurred in 2006, notwithstanding later‑executed documentation with retroactive effective dates, which the court viewed as common in large multinationals.

The IRS emphasized that the Israeli LLC had minimal employees and thin capitalization at the outset, arguing it could not realistically bear risk or perform substantive functions. The court rejected that narrative, concluding that enough risk and responsibility were genuinely shifted to sustain the transaction under the common‑law economic substance and sham‑transaction doctrines (the case did not apply codified section 7701(o)).

Section 482: ex‑ante vs. ex‑post DCF

On the transfer‑pricing side, the court took direct aim at the government’s Section 482 methodology. The IRS expert priced the assignment using a DCF method heavily grounded in ex‑post information and sought a royalty equivalent of about 21.5 percent, effectively pulling back nearly all of the foreign affiliate’s income.

The court instead endorsed Perrigo’s basic DCF approach, with modifications, stressing that:

·         Arm’s‑length pricing must be determined on an ex‑ante basis—using information known or reasonably knowable at the time of the transaction.

·         Financial projections prepared for non‑tax business purposes as of November 2006 were an appropriate starting point.

·         Ex‑post actual distribution costs and differentiated discount rates were not appropriate inputs in this context.

After the court’s adjustments (including rejecting fully loaded actual distribution costs and multiple discount rates), the resulting implied royalty was about 11.12 percent—roughly double Perrigo’s litigating position of 5.25 percent, but still far closer to the taxpayer than to the Service. The court described the government’s Section 482 position as arbitrary and capricious.

Practical takeaways for multinationals

For tax directors and advisers, Perrigo offers several concrete lessons:

·         Economic substance is still about facts and narrative: a well‑documented business strategy, contemporaneous advice, and real allocation of risks and responsibilities can overcome aggressive sham‑transaction theories, even when tax is a significant motive.

·         Documentation timing matters—but is not fatal: back‑dated‑effective intercompany agreements executed within the same fiscal year are not automatically suspect if supported by other credible evidence of when the transaction occurred.

·         Build transfer‑pricing files around ex‑ante evidence: projections, board materials, and non‑tax business cases contemporaneous with the transaction will be central when a court is asked to choose between taxpayer and IRS DCF models.

·         Expect continued IRS reliance on economic substance and ex‑post data, but be prepared to challenge those approaches using Perrigo as persuasive authority, particularly in the context of intangible‑related restructurings.

If you’d like, I can turn this into a fully polished, client‑branded post for your firm site, including a short “What this means for you” box aimed at U.S.‑based multinationals considering or defending cross‑border restructurings.

 Have an Intercompany Transfer Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1.       https://www.courtlistener.com/docket/6597422/perrigo-company-v-united-states/  

2.      https://taxnews.ey.com/news/2026-0397-district-court-judge-approves-final-judgment-in-case-on-economic-substance-doctrine  

3.      https://taxnews.ey.com/news/2025-2161-district-court-finds-pharmaceutical-company-entitled-to-refund-of-taxes-upholds-companys-argument-on-economic-substance-doctrine   

4.      https://www.millerchevalier.com/publication/perrigo-opinion-upholds-economic-substance-intercompany-assignment-contract-rights        

5.       https://insightplus.bakermckenzie.com/bm/dispute-resolution/united-states-district-court-upholds-economic-substance-of-intercompany-transactions-in-perrigo        

6.      https://legalblogs.wolterskluwer.com/international-tax-law-blog/understanding-the-2025-perrigo-decision-through-the-lens-of-a-craps-game/   

7.       http://southernvoice.org/wp-content/uploads/2025/05/SV_GSP_Completo_v2.pdf

8.      https://www.sec.gov/Archives/edgar/data/1012477/0001144204-16-087705.txt

9.      https://du.lv/wp-content/uploads/2024/12/Soc_zin_04.12.2024.pdf

10.   https://www.wieringernieuws.nl/index.php?pagina=Column&optie=Detail

11.    https://www.govinfo.gov/content/pkg/ERP-2024/pdf/ERP-2024-other.pdf

12.   https://www.europarl.europa.eu/RegData/etudes/STUD/2022/729533/EPRS_STU(2022)729533_EN.pdf

13.   https://www.njoag.gov/wp-content/uploads/2026/02/2026-0203_Novartis-Complaint-Bates-Stamped.pdf

14.   https://journals.librarypublishing.arizona.edu/arizlrev/article/10287/galley/9161/download/

15.    https://assets-us-01.kc-usercontent.com/1eeb16db-4934-006e-40a6-38fa91285ebb/2f167feb-05e5-4a3a-ad5f-415e5a5a685f/PMC 620 Declaration of Joseph H. Meltzer in Support of Motions for Final Approval of Settlement and Attorneys_ Fees, Expenses and Service Awards.pdf

16.   https://www.courtlistener.com/docket/6597422/perrigo-company-v-united-states/ 

17.    https://taxnews.ey.com/news/2026-0397-district-court-judge-approves-final-judgment-in-case-on-economic-substance-doctrine 

18.   https://taxnews.ey.com/news/2025-2161-district-court-finds-pharmaceutical-company-entitled-to-refund-of-taxes-upholds-companys-argument-on-economic-substance-doctrine 

19.   https://www.millerchevalier.com/publication/perrigo-opinion-upholds-economic-substance-intercompany-assignment-contract-rights 

20.  https://insightplus.bakermckenzie.com/bm/dispute-resolution/united-states-district-court-upholds-economic-substance-of-intercompany-transactions-in-perrigo 

Read more at: Tax Times blog

Is your tax return raising a red flag?

Most taxpayers will never face an IRS audit, but certain patterns on a return make you much more likely to be selected for a closer look. By understanding the most common “red flags,” you can file accurately, claim every deduction you’re entitled to, and still minimize audit risk.

How the IRS Picks Returns

The IRS runs every filed return through a scoring system (often called the DIF score) that compares your income, deductions, and credits to others in similar situations. Returns that look unusually aggressive for their peer group are kicked out for manual review and are more likely to be audited.

Think of it this way: the further your return looks from “normal” for your income level and occupation, the more likely it is to be flagged.

1. Not Filing When You Should (Income)

If you have reportable income and simply don’t file, you are inviting IRS attention. The agency receives W‑2s, 1099s and other information directly from payors, and missing returns with visible income are prime candidates for enforcement and substitute-for-return assessments.

How to reduce the risk:

·         File every required return, even if you can’t pay in full.

·         Respond promptly to non‑filer notices before the IRS files an estimated return for you.

2. Reporting Too Little Income (Income)

Underreported income is one of the biggest audit triggers. IRS computers automatically match what you report against W‑2s, 1099‑NEC, 1099‑K, 1099‑INT, K‑1s and other forms filed by third parties. If you leave something off, the mismatch can generate a notice or an examination.

How to reduce the risk:

·         Track all sources of income, including gig work, side businesses and digital platforms.

·         Reconcile your numbers to every tax form you receive before filing.

3. High Income With Aggressive Patterns (Income)

Higher‑income taxpayers face higher audit rates, especially when their returns show large losses, complex activities or deductions that don’t “fit” their income profile. AI‑driven systems now do a better job of spotting outliers among high earners with closely held businesses, significant investments, or multiple K‑1s.

How to reduce the risk:

·         Make sure complex items (partnerships, S corporations, trusts) are prepared with solid documentation and professional support.

·         Expect more scrutiny if you are in the top brackets and plan accordingly.

4. Foreign Income, FEIE and Housing Exclusion (Foreign ties)

The foreign earned income exclusion and foreign housing exclusion are legitimate but often misunderstood benefits. Claims that don’t clearly meet the physical‑presence or bona fide residence tests—or that swing in and out from year to year—can draw attention.

How to reduce the risk:

·         Maintain detailed travel calendars and proof of foreign residence if you rely on these exclusions.

·         Coordinate foreign tax credits, exclusions and treaty positions so the return presents a consistent story.

5. Unreported Foreign Accounts and Assets (Foreign ties)

Failing to report foreign financial accounts (FBAR) or specified foreign assets (Form 8938) is a classic red flag. The IRS receives increasing amounts of data from foreign financial institutions under FATCA and information‑sharing agreements and cross‑checks it with filed returns.

How to reduce the risk:

·         Disclose all foreign accounts when you exceed the filing thresholds, even if the income is small.

·         Address past non‑compliance proactively; penalties for willful failures are severe.

6. Disproportionately Large Charitable Deductions (Deductions & credits)

Charitable giving is encouraged in the tax code, but deductions that look unusually large relative to your income are one of the most common audit triggers. Non‑cash contributions, such as appreciated securities or property, are especially likely to be scrutinized if appraisals and acknowledgments are missing or incomplete.

How to reduce the risk:

·         Keep written acknowledgments for gifts of 250 dollars or more and qualified appraisals when required.

·         Make sure total giving is realistic for your income level and consistent from year to year, or be prepared to explain real changes.

7. Rental Losses and “Real Estate Professional” Status (Deductions & credits)

Rental real estate losses that routinely wipe out wage or business income are a magnet for IRS attention. Returns claiming real estate professional status to avoid passive loss limits are regularly examined for contemporaneous time logs and actual material participation.

How to reduce the risk:

·         Maintain detailed logs of hours and activities for each rental or real estate business.

·         Be careful when grouping activities and when claiming that real estate is your primary trade or business.

8. Excessive Self‑Employed and Small‑Business Deductions (IRS transactions)

Schedule C filers and small businesses have more room for judgment, which means more room for the IRS to question whether expenses are ordinary, necessary and truly business‑related. Very high ratios of expenses to income, repeated Schedule C losses, or large write‑offs for vehicles, travel, meals, or “consulting” to family members are frequent audit triggers.

Rounded or “too neat” numbers—10,000 for advertising, 5,000 for supplies, 20,000 for travel—also suggest that estimates, not actual records, are being used.

How to reduce the risk:

·         Separate business and personal accounts and keep receipts or digital records to support every significant deduction.

·         Avoid making up round numbers; use actual totals from your books.

9. Alimony and Other Sensitive Adjustments (Deductions & credits)

For divorces finalized after 2018, alimony is generally not deductible to the payer or taxable to the recipient; older agreements are treated differently. Mismatches between what one spouse deducts and what the other reports, or incorrectly claiming alimony on a post‑2018 agreement, can lead to questions.

Other above‑the‑line deductions and credits—such as education benefits or child‑related credits—also draw attention when they are unusually large or inconsistent with the rest of the return.

How to reduce the risk:

·         Confirm exactly how your divorce decree treats payments and which tax rules apply to your agreement year.

·         Keep documentation for education expenses, dependency claims and similar items that the IRS frequently disallows.

10. Virtual Currency and Digital Assets (IRS transactions)

Digital assets are now squarely in the IRS spotlight. There is a dedicated question on Form 1040, brokers must issue new Form 1099‑DA information reports, and the IRS uses advanced data‑matching and AI tools to cross‑check exchange data with individual returns. Failing to answer the digital asset question accurately or omitting taxable crypto sales, staking income, or other transactions is increasingly risky.

How to reduce the risk:

·         Keep wallet‑by‑wallet records of buys, sales, swaps, and income events and reconcile them each year.

·         Report all taxable events on Form 8949 and Schedule D, even if you did not receive a 1099 from an exchange.

 Have an IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1.       https://www.kiplinger.com/taxes/tax-returns/602068/irs-audit-red-flags       

2.      https://www.aarp.org/money/taxes/irs-audit-red-flags/ 

3.      https://www.everlance.com/blog/irs-audit-red-flags 

4.      https://shoaibahmedcpa.com/blogs/tax-services/irs-tax-audit-2026/        

5.       https://profitwiseaccounting.biz/what-the-irs-is-looking-for-in-2026/   

6.      https://kkca.io/expat-taxation/top-5-irs-audit-red-flags-for-expats/   

7.       https://www.kiplinger.com/taxes/irs-audit-red-flags-for-retirees 

8.      https://www.nsktglobal.com/usa/blog/how-to-avoid-irs-business-tax-audits-2026 

9.      https://money.usnews.com/money/personal-finance/slideshows/9-red-flags-that-could-trigger-a-tax-audit 

10.   https://turbotax.intuit.com/tax-tips/irs-letters-and-notices/top-red-flags-that-trigger-an-irs-audit/L2TzlqFNe 

11.    https://www.nidhicpa.com/the-new-audit-triggers-what-the-irs-will-flag-most-in-2026/

12.   https://www.taxesforexpats.com/articles/expat-tax-rules/who-is-likely-to-be-targeted-for-an-irs-audit.html

13.   https://www.journalofaccountancy.com/news/2026/jan/new-law-irs-workforce-cuts-raise-red-flags-for-tax-season-reports-say/

14.   https://www.communitytax.com/es/tax-blog/top-irs-audit-triggers/

15.    https://www.youtube.com/watch?v=Yk9JKiyQTqU

16.   https://www.everlance.com/blog/irs-audit-red-flags  

17.    https://www.therealestatecpa.com/blog/irs-audit-red-flags-every-taxpayer-should-know/        

18.   https://allenbarron.com/are-there-strategies-to-avoid-an-irs-audit/   

19.   https://hopkinscpa.tax/irs-dif-score-guide/ 

20.  https://legal-resources.uslegalforms.com/d/differential-income-factor-method-dif-method 

21.   https://www.irs.gov/pub/irs-soi/puidif2.pdf

22.   https://www.kiplinger.com/taxes/tax-returns/602068/irs-audit-red-flags       

23.   https://tehcpa.net/10-red-flag-filing-mistakes-to-avoid-triggering-an-irs-audit-as-a-self-employed-business-owner/   

24.  https://www.aarp.org/money/taxes/irs-audit-red-flags/

25.   https://www.jdsupra.com/legalnews/irs-continues-to-tighten-its-focus-on-u-7525477/   

26.  https://shoaibahmedcpa.com/blogs/tax-services/irs-tax-audit-2026/     

27.   https://kkca.io/expat-taxation/top-5-irs-audit-red-flags-for-expats/    

28.  https://www.kiplinger.com/taxes/irs-audit-red-flags-for-retirees 

29.  https://irsprob.com/2025/10/09/irs-audit-red-flags-critical-triggers/  

30.  https://www.amgloan.com/blog/post/10-red-flags-that-can-trigger-an-irs-audit/ 

31.   https://www.growthforce.com/blog/3846/general/red-flags-that-prompt-an-irs-audit-for-small-business/-0

32.   https://www.cnbc.com/2025/11/22/new-irs-requirements-crypto-tax-cheat-risky-this-year-filing.html 

33.   https://www.boston-tax-lawyer.com/blog/did-you-overlook-these-5-tax-issues-they-could-trigger-an-irs-audit/

34.   https://www.irs.gov/pub/irs-drop/rp-25-31.pdf

35.   https://www.irs.gov/pub/irs-irbs/irb25-48.pdf

 

Read more at: Tax Times blog

In e-News for Tax Professionals 2026-05, the IRS has quietly made a big change that will matter to a lot of cash‑strapped businesses and their owners: “Streamlined Installment Agreements” have been rebranded and expanded as Simple Payment Plans, and as of December 3, 2025, they now fully cover many business taxpayers, not just individuals.

For practitioners and business owners, this means more cases can be resolved quickly, without financial disclosures, with predictable terms and fewer headaches.

What Is a Simple Payment Plan?

A Simple Payment Plan is a long‑term payment arrangement with the IRS for taxpayers who owe but can’t pay in full right away. These plans are designed to be quick to set up and low‑friction:

·         No collection information statement (no Form 433) is required to qualify.

·         No lien determination is required as part of the qualification criteria.

·         No trust fund recovery penalty determination is required just to get into the plan.

·         Taxpayers must be current with all filing and payment obligations.

Previously, this streamlined treatment was largely discussed in the context of individuals, but now the IRS has folded key business installment agreement programs into this “Simple Payment Plan” framework.

The Big Update: Businesses Are Now Included

On December 3, 2025, the IRS updated how it processes business installment agreements. Two familiar business programs are now handled under the Simple Payment Plan umbrella:

·         In‑Business Trust Fund Express Agreement

·         Business Streamlined Agreement

Both are now processed using the updated Simple Payment Plan qualifications. In practice, this means more in‑business and out‑of‑business taxpayers can get a plan set up quickly if they stay under the new dollar thresholds and are current on filings.

Who Qualifies? Key Dollar Thresholds

The Simple Payment Plan is all about the total assessed tax, penalties, and interest. Here are the current thresholds:

Individuals

·         Total assessed tax, penalties, and interest of 50,000 dollars or less.

This continues the long‑standing streamlined concept for 1040 taxpayers, now under the “Simple Payment Plan” label.

Businesses With Trust Fund Taxes

Trust fund taxes are amounts withheld from employees (such as federal income tax withholding and the employee portion of FICA) that the business holds in trust for the government.

For businesses with trust fund taxes:

·         25,000 dollars or less in assessed tax, penalties, and interest; or

·         50,000 dollars or less for an out‑of‑business sole proprietorship.

That last point is important: an out‑of‑business sole proprietor with trust fund exposure can still benefit from the higher 50,000‑dollar threshold.

Businesses Without Trust Fund Taxes

For businesses that do not owe trust fund taxes (for example, some income‑tax‑only cases):

·         50,000 dollars or less in assessed tax, penalties, and interest.

What If the Balance Is Too High?

If a taxpayer does not qualify for a Simple Payment Plan under these thresholds, they may still qualify for another type of payment plan under standard IRS installment agreement rules. That may require a collection information statement, lien analysis, and possibly a more detailed negotiation.

Basic Requirements: Staying Current

All applicants for a Simple Payment Plan must be current with filing and payment obligations. That generally means:

·         All required returns are filed.

·         Current‑year withholding or estimated tax payments are up to date.

For businesses, that also means current federal tax deposits must be made on time if the business is still operating.

The IRS will not approve a Simple Payment Plan if the taxpayer is still accruing new balances through missed deposits or estimated payments.

Payment Terms and Methods

While the exact terms can vary by case, the Simple Payment Plan is intended to fit within the normal collection statute, which often allows several years for full payment. Longer terms, however, mean more interest and penalties over time.

Accepted payment methods include:

·         Direct debit from a bank account (often the smoothest and most favored method).

·         Monthly payments via IRS Direct Pay.

·         Debit or credit card, digital wallet, or cash through approved third‑party processors.

Direct debit can reduce setup fees in some situations and tends to lower default risk.

How to Apply: Individuals vs. Businesses

The application path is different for individuals and businesses.

Individuals

Individuals can:

·         Sign in to their IRS online account to request a Simple Payment Plan.

·         Call the phone number listed on their IRS notice.

·         Call general IRS individual accounts at 800‑829‑1040.

Online access remains the fastest route for many 1040 balances that fall within the 50,000‑dollar limit.

Businesses

Businesses or their authorized representatives can:

·         Call 800‑829‑4933 (business and specialty tax line).

·         Visit a local Taxpayer Assistance Center (TAC) after scheduling an appointment.

These channels now process eligible business installment requests under the updated Simple Payment Plan rules.

Practical Takeaways for Business Owners and Advisors

For owners and advisors, the expanded Simple Payment Plan rules create several planning opportunities:

·         Faster resolution for qualifying in‑business 941 and 1120 cases with balances under the new thresholds.

·         Less intrusive setup for many out‑of‑business entities and sole proprietors, especially with trust fund exposure under 50,000 dollars.

·         Clear guidance on when a case can be handled quickly versus when a full‑blown financial disclosure‑based installment agreement is necessary.

For more detail, including the latest payment terms and options, the IRS maintains a dedicated “Simple Payment Plans for individuals and businesses” page on IRS.gov.

  

for a FREE Tax HELP Contact Us at:

www.TaxAid.com or www.OVDPLaw.com 

or Toll Free at 888-8TaxAid (888) 882-9243 

Read more at: Tax Times blog

Sirius Solutions, L.L.L.P. v. Commissioner, No. 24-60240 (5th Cir. Jan. 16, 2026), is a major taxpayer win that adopts a bright-line, liability-based definition of “limited partner” for the Section 1402(a)(13) self-employment tax exception. It rejects the Tax Court’s functional analysis and holds that partners in a state-law limited partnership (including an LLLP) who have limited liability qualify for the limited partner exception on their distributive shares, even if they materially participate, with self-employment tax generally limited to their guaranteed payments.

What the Fifth Circuit Held

·         A “limited partner” under Section 1402(a)(13) means a partner in a limited partnership who has limited liability under applicable state law.

·         The phrase “as such” in Section 1402(a)(13) means that the exception applies to income earned in the partner’s legal capacity as a limited partner, not to compensation for services (e.g., guaranteed payments).

·         The court expressly rejected the Tax Court’s “functional analysis,” which had disqualified Sirius’s limited partners because they were actively involved in the consulting business.

·         The decision vacates the Tax Court and remands, but there is little left to resolve other than mechanics given the court’s construction of “limited partner.”

Facts and Procedural Background

·         Sirius Solutions operated as a Texas limited liability limited partnership (LLLP), with a corporate general partner (Sirius GP, LLC) holding a very small percentage interest and multiple limited partners.

·         The limited partners all had limited liability under Texas law but also provided substantial services to the consulting firm.

·         Sirius treated the limited partners’ distributive shares (other than guaranteed payments) as exempt from self-employment tax under Section 1402(a)(13).

·         The IRS recharacterized a large portion of those amounts as subject to SE tax, and the Tax Court sided with the IRS using a multi-factor functional test focused on participation and “passive investor” status.

·         On appeal, the Fifth Circuit reversed, finding the Tax Court’s functional interpretation inconsistent with the statutory text and historical usage of “limited partner.”

The Court’s Reasoning

·         Text and ordinary meaning: The court looked to dictionaries and contemporaneous usage at the time Section 1402(a)(13) was enacted and concluded that “limited partner” was universally understood as a partner whose liability is limited by state limited partnership statutes.

·         Administrative materials: The opinion relied on historic SSA and IRS guidance that tied “limited partner” status to limited liability, not to a passive-investor or non-service test.

·         Structure of Section 1402: The court noted that where Congress wanted to condition SE tax treatment on the provision of services, it knew how to do so expressly (e.g., in nearby Section 1402(a)(10)), and it did not add such language to Section 1402(a)(13).

·         “As such” language: The court read “as such” as limiting the exclusion to the partner’s capacity as a limited partner but not as importing a separate “passivity” or “no services” requirement.

·         Rejection of Soroban and similar views: The panel explicitly disapproved the Second Circuit’s Soroban Capital Partners decision and other authorities reading a “passive investor” gloss into “limited partner.”

Practical Implications for Limited Partners and Fund Managers

·         Planning clarity in the Fifth Circuit: Within the Fifth Circuit (Texas, Louisiana, Mississippi), partners with limited liability in a state-law limited partnership or LLLP can generally treat their distributive shares as excluded from SE tax, regardless of their level of services, subject to SE tax on guaranteed payments.

·         Entity choice for managers: Fund and asset management structures using limited partnerships with LLLP features gain significant comfort that GP and LP interests with limited liability can be planned to minimize SE tax, so long as the state-law limited partnership form and liability protections are respected.

·         Guaranteed payments remain exposed: The opinion repeatedly notes that guaranteed payments for services (and any other clearly service-based compensation streams) remain subject to self-employment tax.

·         Open questions: Commentators highlight unresolved issues, including whether owners of the general partner entity in an LLLP might themselves be treated as “limited partners” for purposes of the exception and how other circuits (notably the First and Second, which have pending cases) will respond to Sirius.

·         Golsen and Tax Court cases: For taxpayers in the Fifth Circuit, the Tax Court will be bound by Sirius under Golsen, while outside circuits the IRS is likely to continue litigating for a functional or Soroban-like approach until the conflict is resolved or guidance is updated.

Illustration: Simple Example

Assume a Texas LLLP with:

·         GP entity with a small interest and limited liability,

·         Several individual limited partners with limited liability under Texas law, each providing substantial services,

·         Distributive shares of partnership income and separate guaranteed payments for services.

Under Sirius in the Fifth Circuit, the distributive shares allocable to the limited partners (and arguably some or all of the GP interest if treated as a limited partner under state law) should qualify for the Section 1402(a)(13) exclusion from SE tax, while guaranteed payments remain subject to SE tax.

 Have an IRS Tax Problem?

     Contact the Tax Lawyers at

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources:

1.       https://www.hklaw.com/-/media/files/news/2026/fifthcircuitopinion_siriussolutionsvcommissioner.pdf?rev=aff908d4a3e744859aeea327f3479fdf&hash=ED705A122BB432AC39D17C28DE6DA51F       

2.      https://www.proskauertaxtalks.com/2026/01/fifth-circuit-in-sirius-solutions-reverses-tax-court-and-exempts-limited-partners-from-self-employment-tax/                  

3.      https://www.stinson.com/newsroom-publications-update-on-limited-partner-exception-to-self-employment-tax-liability-fifth-circuit-decision-revives-the-issue            

4.      https://www.ca5.uscourts.gov/opinions/pub/24/24-60240-CV0.pdf               

5.       https://www.cbiz.com/insights/article/fifth-circuit-court-of-appeals-hands-irs-defeat-in-limited-partner-definition-case    

6.      https://klehr.com/publications/fifth-circuit-rules-that-all-limited-partners-having-limited-liability-are-exempt-from-self-employment-tax-even-if-they-participate-in-management/  

7.       https://tax.thomsonreuters.com/news/expert-unpacks-whats-next-after-sirius-solutions-decision/ 

8.      https://www.sullcrom.com/insights/memo/2026/January/Fifth-Circuit-Overturns-Tax-Court-Limited-Partner-Case-Sirius-Solutions

9.      https://www.troutman.com/insights/fifth-circuit-overturns-tax-court-ruling-in-favor-of-the-taxpayer-in-case-evaluating-standard-for-limited-partner-exception-to-self-employment-tax/

10.   https://www.santabarbara.courts.ca.gov/forms-filing/local-rules

11.    https://www.texaslawblog.law/2026/01/the-fifth-circuit-defines-limited-partner-for-purposes-of-the-1402a13-exception-to-self-employment-tax/

12.   https://static.e-publishing.af.mil/production/1/af_ja/publication/dafi51-201/dafi51-201.pdf

13.   https://www.winston.com/en/blogs-and-podcasts/tax-impacts/5th-circuit-gives-taxpayers-sirius-victory-in-self-employment-tax-case

14.   https://ccresourcecenter.org/state-restoration-profiles/tennessee-restoration-of-rights-pardon-expungement-sealing/

15.    https://www.law360.com/tax-authority/federal/articles/2436546/5th-circ-ruling-clarifies-tax-rules-for-limited-partners

Read more at: Tax Times blog