In a significant decision for the investment funds industry, the U.S. Court of Appeals for the Fifth Circuit has officially rejected the Internal Revenue Service (IRS)’s “passive investor” test for the limited partner self-employment tax exception. On January 16, 2026, the court ruled in Sirius Solutions LLLP v. Commissioner that any limited partner in a state-law limited partnership who enjoys limited liability qualifies for the exclusion of their profit shares from self-employment (SECA) taxes.