Holland & Knight Secures Landmark Victory in the Fifth Circuit for Taxpayers Nationwide

DALLAS (January 17, 2026) – Holland & Knight's Tax Controversy and Litigation Practice, led by Partners Mary McNulty and Lee Meyercord, achieved a major nationwide victory as the U.S. Court of Appeals for the Fifth Circuit released its highly anticipated opinion in Sirius Solutions, L.L.L.P. v. Commissioner on January 16. The court held that, for purposes of the federal self‑employment tax statute, a "limited partner" is defined by limited liability – not by whether the partner is passive or active in the business.

Rejecting the IRS's interpretation, the Fifth Circuit found the government's attempt to define a limited partner as a "passive investor" unpersuasive and unsupported by the statute, stating unequivocally that "a 'limited partner' is a partner in a limited partnership that has limited liability." This clarification protects the statutory framework Congress enacted and forecloses an expansive IRS approach that threatened to upend long‑settled partnership expectations.

In practical terms, this decision allows state-law limited partners to qualify for an exemption from self-employment taxes on their distributive shares of income without needing "the help of an army of lawyers and accountants."

This case has been one of the most closely watched tax controversies in the country, drawing intense attention from tax practitioners, industry groups and partnerships nationwide. The decision delivers a significant win for taxpayers, providing long‑needed certainty on the scope of the limited partner exception under Section 1402(a)(13) and reaffirming the primacy of statutory text over administrative reinterpretation.

"Today, the Fifth Circuit rejected the government's attempt to redefine a statute that was clearly understood for more than four decades to exempt limited partners from self-employment taxes," said Ms. McNulty. "This ruling brings clarity back to a part of the tax code that never should have been controversial in the first place. The court followed the statute's plain text. It's a big win for taxpayers."

"This decision will have far‑reaching implications across industries – particularly for partnerships whose structures rely on state‑law limited partner classifications," said Ms. Meyercord. "It was an honor to represent Sirius Solutions in this pivotal case."

Ms. McNulty and Ms. Meyercord were assisted during the appeal by Holland & Knight Appellate Partner Rich Phillips.

Holland & Knight's Tax Controversy and Litigation Practice includes many of the nation's leading attorneys, with a long-standing record of representing businesses and individuals in tax disputes across the country at the federal, state and local levels. Lawyers in the practice have served in leadership roles at the IRS, U.S. Department of Justice (DOJ), U.S. Attorney's Office and U.S. Department of the Treasury.