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Self-employment tax has become one of the most aggressively examined issues in IRS audits — and recent court activity just made it even more complicated.

In this timely and technical deep dive, CPA Larry Pon breaks down the rapidly evolving landscape surrounding self-employment tax for LLC members and S corporation owners — including the recent 5th Circuit case that vacated a Tax Court decision involving limited partners, and the pending case in the 1st Circuit that could further reshape the rules.

If you advise business owners, this is not theoretical. This is an IRS audit priority.

Why This Matters Now

For years, taxpayers have attempted to minimize SE tax exposure by: structuring LLC interests as “limited partner” positions; allocating income strategically and Paying minimal S corporation wages to reduce payroll tax

The IRS has responded aggressively — and the courts are now weighing in.

• With conflicting interpretations emerging across circuits, advisors must understand:
• What is still defensible
• What is clearly audit bait
• And where the gray areas are narrowing

What Larry Will Cover

1. The Limited Partner Exception — What It Really Means
   1. The statutory language of §1402(a)(13)
   2. How courts have interpreted “limited partner”
   3. Why the 5th Circuit vacated the Tax Court decision
   4. What to watch in the 1st Circuit case
   5. Practical implications for multi-member LLCs
   6. IRS Audit Focus & Enforcement Trends
2. Why SE tax is an enforcement priority
   1. Common audit triggers
   2. How revenue agents are analyzing member participation
3. S Corporations & Reasonable Compensation
   1. The legal standard for reasonable compensation
   2. How the IRS builds its case
   3. Data sources and valuation approaches
   4. Common mistakes advisors make
   5. Structuring compensation defensibly
4. Planning Opportunities (and Landmines)
   1. When SE tax reduction strategies are supportable
   2. When they cross the line
   3. Documentation best practices
   4. How to advise clients in uncertain jurisdictions