The Limited Partner Loophole, 5th Circuit Fallout & Reasonable Comp Battles
What You'll Learn
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-…
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
The statutory language of §1402(a)(13)
How courts have interpreted “limited partner”
Why the 5th Circuit vacated the Tax Court decision
What to watch in the 1st Circuit case
Practical implications for multi-member LLCs
2. IRS Audit Focus & Enforcement Trends
Why SE tax is an enforcement priority
Common audit triggers
How revenue agents are analyzing member participation
3. S Corporations & Reasonable Compensation
The legal standard for reasonable compensation
How the IRS builds its case
Data sources and valuation approaches
Common mistakes advisors make
Structuring compensation defensibly
4. Planning Opportunities (and Landmines)
When SE tax reduction strategies are supportable
When they cross the line
Documentation best practices
How to advise clients in uncertain jurisdictions
Who Should Attend
This session is designed for:
Financial advisors working with business ow