Court Opinion

ID: 9905121
Source: CourtListenerOpinion
Date Created: 2023-11-28 20:02:24.202538+00
Date Added: 2024-06-11T09:22:03.449219
License: Public Domain

United States Tax Court

                            161 T.C. No. 12

    SOROBAN CAPITAL PARTNERS LP, SOROBAN CAPITAL
       PARTNERS GP LLC, TAX MATTERS PARTNER,
                      Petitioner

                                   v.

           COMMISSIONER OF INTERNAL REVENUE,
                       Respondent

                              —————

Docket Nos. 16217-22, 16218-22.                Filed November 28, 2023.

                              —————

             PS, a limited partnership subject to the TEFRA
      audit and litigation procedures, made guaranteed
      payments and distributed ordinary income to its limited
      partners. It excluded distributions of ordinary income to its
      limited partners from its computation of net earnings from
      self-employment. R determined that the distributions of
      ordinary income should have been included in PS’s
      computation of net earnings from self-employment.

             P, the tax matters partner of PS, filed a Motion for
      Summary Judgment asking the Court to hold that a
      limited partner’s distributive share of partnership income
      is excluded from net earnings from self-employment. The
      parties cross-moved as to whether we have jurisdiction in
      these partnership-level proceedings to inquire into the
      functions and roles of PS’s limited partners.

             Held: I.R.C. § 1402(a)(13) contains a limited partner
      exception that excludes from net earnings from self-
      employment “the distributive share of any item of income
      or loss of a limited partner, as such.”

                           Served 11/28/23
                                             2

              Held, further, the limited partner exception of I.R.C.
        § 1402(a)(13) does not apply to a partner who is limited in
        name only.

               Held, further, determining whether a partner is a
        limited partner in name only requires an inquiry into the
        functions and roles of the limited partner.

               Held, further, because net earnings from self-
        employment is a partnership item, an inquiry into the
        functions and roles of a limited partner is a factual
        determination that underlies a partnership item that is
        properly determined in a TEFRA proceeding. Treas. Reg.
        § 301.6231(a)(3)-1(b).

               Held, further, P’s Motion for Summary Judgment
        will be denied; R’s Motion for Partial Summary Judgment
        will be granted.

                                       —————

Elizabeth J. Smith, Kathleen S. Gregor, Caitlyn M. Leonard, and
Armando Gomez, for petitioner.

Emerald G. Smith, Naseem Jehan Khan, Michael E. Washburn, and
Jonathan E. Cornwell, for respondent.

                                       OPINION

       BUCH, Judge: Soroban Capital Partners LP (Soroban) is a
limited partnership composed of a general partner and limited partners.
For 2016 and 2017 (years in issue), Soroban was subject to the TEFRA 1
unified audit and litigation procedures of sections 6221–6234 2 as then

        1 Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L.
No. 97-248, §§ 401–407, 96 Stat. 324, 648–71. The TEFRA procedures were repealed
and apply only to tax years beginning before January 1, 2018. Bipartisan Budget Act
of 2015, Pub. L. No. 114-74, § 1101(a), (g), 129 Stat. 584, 625, 638. Neither party
disputes that these cases are TEFRA proceedings.
        2 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are
to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,
                                          3

in effect. On its returns for the years in issue, it reported as net earnings
from self-employment its guaranteed payments to its limited partners
plus the general partner’s share of ordinary business income. The
Commissioner adjusted Soroban’s net earnings from self-employment by
increasing it to include the shares of ordinary business income allocated
to the limited partners, taking the position that they were limited
partners in name only.

       Pending before the Court are two Motions in each of these cases.
The first is Soroban Capital Partners GP LLC’s (petitioner) Motion for
Summary Judgment in which petitioner asks the Court to conclude that
the ordinary business income that is allocated to Soroban’s limited
partners is excluded from its net earnings from self-employment merely
by virtue of the partners’ being labeled limited partners. That Motion
asks in the alternative that we hold that an inquiry into the functional
roles of Soroban’s limited partners cannot be determined in these
partnership-level proceedings. The second motion is the Commissioner’s
Motion for Partial Summary Judgment, in which he asks us to conclude
that an inquiry into the functional roles of Soroban’s limited partners is
a partnership item that can be determined in these partnership-level
proceedings.

       Partnerships are required to include in their calculation of net
earnings from self-employment the distributive shares of their partners’
income. But section 1402(a)(13) excludes from this computation a
limited partner’s distributive share of income (limited partner
exception). Congress intended for this limited partner exception to apply
to earnings of an investment nature. To determine whether earnings
allocated to limited partners are of an investment nature necessarily
requires an inquiry into the functions and roles of the limited partners.

       Because the partnership is required to calculate net earnings
from self-employment at the partnership level, any adjustment to this
calculation must be made in a partnership-level proceeding. Our
jurisdiction to make determinations in a partnership-level proceeding
depends on whether the item to be determined is a partnership item. A
partnership item is any item required to be taken into account by a
partnership under subtitle A that is more appropriately determined at
the partnership level plus any legal or factual determination underlying
such an item. Subtitle A requires partnerships to determine and report

and Rule references are to the Tax Court Rules of Practice and Procedure. All monetary
amounts are shown in U.S. dollars and rounded to the nearest dollar.
                                         4

the net earnings from self-employment. Therefore, we have jurisdiction
to determine whether Soroban’s shares of ordinary business income
allocated to its limited partners are excluded from net earnings from
self-employment in these partnership-level proceedings.

                                   Background

       The facts described below are derived from the parties’ Motions
and pleadings in the record of these cases. Rule 121(b). 3 They are stated
solely for purposes of deciding the pending Motions and are not findings
of fact for these cases. See Sundstrand Corp. v. Commissioner, 98 T.C.
518, 520 (1992), aff’d, 17 F.3d 965 (7th Cir. 1994).

       Soroban is an investment firm that is organized as a Delaware
limited partnership. It was originally formed as a limited liability
company (LLC), but converted to a limited partnership pursuant to
Delaware law on January 1, 2015. Soroban is classified as a partnership
for federal income tax purposes.

I.     Soroban’s Limited Partnership Agreement

       Soroban’s Limited Partnership Agreement sets forth the terms of
the partnership. It states that Soroban has six partners in total, which
includes one general partner and five limited partners. Petitioner is the
general partner and tax matters partner. The limited partners are Eric
Mandelblatt, Gaurav Kapadia, Scott Friedman, EWM1 LLC, and GKK
LLC. However, because both EWM1 and GKK are single-member LLCs
wholly owned by Mr. Mandelblatt and Mr. Kapadia, respectively, they
are disregarded for federal income tax purposes. 4 Therefore, for federal
income tax purposes, Soroban has only three limited partners
(Mr. Mandelblatt, Mr. Kapadia, and Mr. Friedman).

       The Limited Partnership Agreement provides the roles and
responsibilities of Soroban’s partners. It lists the general partner and its
role and authority over the business affairs of the partnership; the
limited partners and their roles and interests in the partnership; how
the profits and losses are to be allocated; the terms surrounding capital
contributions; the voting classes; and the compensation provided to the

       3 The Court’s Rules were amended effective March 20, 2023, after the pending

Motions were filed. For purposes of these Motions, we apply the Rules as in effect at
the time the Motions were filed.
       4 Single member entities are disregarded as entities separate from their

owners. Treas. Reg. §§ 301.7701-1(a)(4), 301.7701-3(f)(2).
                                    5

limited partners in exchange for their services. Mr. Mandelblatt,
Mr. Kapadia, and Mr. Friedman received guaranteed payments in
exchange for providing services to Soroban.

II.   2016 and 2017 Tax Returns

       Soroban filed Forms 1065, U.S. Return of Partnership Income, for
the years in issue. On those returns Soroban identified petitioner as the
general partner and Mr. Mandelblatt, Mr. Kapadia, and Mr. Friedman
as limited partners. It reported total net earnings from self-employment
of $2,035,395 and $1,901,131 for 2016 and 2017, respectively. These
totals represented the guaranteed payments received by
Mr. Mandelblatt, Mr. Kapadia, and Mr. Friedman for their services to
the partnership, and petitioner’s share of Soroban’s ordinary business
income. However, Soroban excluded Mr. Mandelblatt’s, Mr. Kapadia’s,
and Mr. Friedman’s shares of Soroban’s ordinary business income in its
computation of net earnings from self-employment.

       On April 25, 2022, the Commissioner issued Notices of Final
Partnership Administrative Adjustment for the years in issue,
increasing Soroban’s net earnings from self-employment and gross
nonfarm income. Petitioner, as tax matters partner, filed a timely
Petition challenging the Commissioner’s determinations.

       Petitioner filed a Motion for Summary Judgment, asking the
Court to find as a matter of law (1) that section 1402(a)(13) excludes
Mr. Mandelblatt’s, Mr. Kapadia’s, and Mr. Friedman’s shares of
Soroban’s ordinary business income from net earnings from self-
employment and thus excludes those earnings from self-employment
tax; or in the alternative, (2) that any inquiry into a limited partner’s
role at Soroban does not concern a partnership item and cannot be
resolved in a TEFRA partnership-level proceeding. The Commissioner
filed a Motion for Partial Summary Judgment asking the Court to find
as a matter of law that an inquiry into a limited partner’s role at Soroban
does concern a partnership item and can be resolved in these
proceedings.

                               Discussion

       These cases present the question of whether Soroban’s net
earnings from self-employment should include its limited partners’
distributive shares of ordinary business income. But resolving this
question requires us to address two preliminary issues. First, we must
determine the scope of the limited partner exception of section
                                   6

1402(a)(13), which excludes from net earnings from self-employment the
distributive share of “a limited partner, as such.” If we conclude that
this limited partner exception requires an inquiry into a limited
partner’s role in the partnership, we must determine whether we have
jurisdiction to make that inquiry in these partnership-level proceedings.

I.    Summary Judgment Standard

      We may grant summary judgment when there is no genuine
dispute as to any material fact and a decision may be rendered as a
matter of law. Rule 121(b); Sundstrand Corp., 98 T.C. at 520. The
moving party bears the burden of showing that there is no genuine
dispute as to any material fact. Sundstrand Corp., 98 T.C. at 520. When
a motion for summary judgment is properly made and supported, an
opposing party may not rest on mere allegations or denials. Rule 121(d).
Rather, the party’s response, by affidavits or declarations, or as
otherwise provided in Rule 121, must set forth specific facts showing
there is a genuine factual dispute for trial. Rule 121(d). In deciding
whether to grant summary judgment, we view the facts and make
inferences in the light most favorable to the nonmoving party.
Sundstrand Corp., 98 T.C. at 520.

II.   Self-Employment Tax

       Section 1401(a) imposes a tax on the self-employment income of
individuals. See also Treas. Reg. § 1.1401-1(a). Self-employment income
is defined as “the net earnings from self-employment derived by an
individual . . . during any taxable year.” I.R.C. § 1402(b); Howell v.
Commissioner, T.C. Memo. 2012-303, at *9. Section 1402(a) in turn
defines net earnings from self-employment as

      the gross income derived by an individual from any trade
      or business carried on by such individual, less the
      deductions allowed by this subtitle which are attributable
      to such trade or business, plus his distributive share
      (whether or not distributed) of income or loss described in
      section 702(a)(8) from any trade or business carried on by
      a partnership of which he is a member.

Partnerships are required to determine and report its “partners’
distributive shares of income, gains, deductions, and credit.” Kaplan v.
United States, 133 F.3d 469, 471 (7th Cir. 1998); I.R.C. § 6031; see also
Weiner v. United States, 389 F.3d 152, 154 (5th Cir. 2004). And under
section 702(a)(8), each partner is required to separately take into
                                        7

account their distributive share of the partnership’s “taxable income or
loss, exclusive of items requiring separate computation under other
paragraphs of [section 702(a)].” Taken together, these Code sections
require partners to include their distributive shares of partnership
income in net earnings from self-employment. I.R.C. §§ 1402(a),
702(a)(8); Renkemeyer, Campbell & Weaver, LLP v. Commissioner, 136
T.C. 137, 146 (2011).

      But there are exceptions to this rule. Specifically, section
1402(a)(13) contains a limited partner exception that excludes from net
earnings from self-employment

       the distributive share of any item of income or loss of a
       limited partner, as such, other than guaranteed payments
       described in section 707(c) to that partner for services
       actually rendered to or on behalf of the partnership to the
       extent that those payments are established to be in the
       nature of remuneration for those services.

       Soroban included the guaranteed payments distributed to
Mr. Mandelblatt, Mr. Kapadia, and Mr. Friedman in its net earnings
from self-employment, but it failed to include their distributive shares
of ordinary business income. Disagreeing with this computation, the
Commissioner adjusted Soroban’s net earnings from self-employment by
the amount of the distributive shares allocated to Mr. Mandelblatt,
Mr. Kapadia, and Mr. Friedman. We must determine whether
Mr. Mandelblatt, Mr. Kapadia, and Mr. Friedman are “limited partners,
as such” as that phrase is used in section 1402(a)(13), and thus whether
Soroban properly excluded their shares of ordinary business income
from its net earnings from self-employment.

       A.     Limited Partner, As Such

       Section 1402(a)(13) does not define the phrase “limited partner,
as such.” However, legislative history and caselaw provide us with
insight on Congress’s intended meaning. The limited partner exception
under section 1402(a)(13) was enacted in 1977 5 to “exclude from social
security coverage, the distributive share of income or loss received by a

     5 This law was originally enacted as section 1402(a)(12). See Social Security

Amendments of 1977, Pub. L. No. 95-216, § 313(b), 91 Stat. 1509, 1536.
                                          8

limited partner from the trade or business of a limited partnership.” 6
Social Security Amendments of 1977, § 313(b), 91 Stat. at 1536; H.R.
Rep. No. 95-702, pt. 1, at 11, as reprinted in 1977 U.S.C.C.A.N. at 4168.
Essentially, it was enacted to exclude earnings that are of an investment
nature. H.R. Rep. No. 95-702, pt. 1, at 11, as reprinted in 1977
U.S.C.C.A.N. at 4168.

       In 1997 Treasury issued a proposed regulation seeking to define
the scope of the limited partner exception. See Prop. Treas. Reg.
§ 1.1402(a)-2, 62 Fed. Reg. 1702 (Jan. 13, 1997). The proposed regulation
provided that an individual would not be treated as a limited partner if
the individual had personal liability for partnership debts, had
authority to contract on behalf of the partnership, or participated in the
partnership’s trade or business for more than 500 hours during the
partnership’s taxable year. Id. para. (h)(2), 62 Fed. Reg. at 1704.

       This proposal received much criticism. That criticism led
Congress to issue a moratorium prohibiting Treasury from issuing any
temporary or final regulation with respect to the definition of a limited
partner under section 1402(a)(13) until July 1, 1998. Taxpayer Relief
Act of 1997, Pub. L. No. 105-34, § 935, 111 Stat. 788, 882. Congress’s
reasoning behind the moratorium was that “the Senate [was] concerned
that the proposed change in the treatment of individuals who are limited
partners under applicable State law exceeds the regulatory authority of
the Treasury Department and would effectively change the law
administratively without congressional action.” Revenue Reconciliation
Act of 1997, H.R. 2014, 105th Cong., 143 Cong. Rec. S6694, S6774, S6819
(1997). 7

       Since the moratorium, Congress has briefly discussed the
definition of limited partner but has not defined it. See, e.g., Staff of

       6  Congress enacted this provision out of concern for the use of limited
partnership investments to obtain Social Security benefits. Before its enactment,
business organizations could solicit investments in limited partnerships as a means
for investors to become insured for Social Security benefits. In these situations
investors in the limited partnership would perform no services for the partnership and
receive Social Security coverage based on investment income. See H.R. Rep.
No. 95-702, pt. 1, at 40–41 (1977), as reprinted in 1977 U.S.C.C.A.N. 4155, 4197–98.
        7 The Sense of the Senate Resolution also noted that entities like LLCs and

limited liability partnerships (LLPs) were not widely used at the time the limited
partner exception was enacted, and it recognized that the proposed regulation
attempted to address owners of those entities. H.R. 2014, 105th Cong., 143 Cong. Rec.
S6694, S6774, S6819.
                                           9

J. Comm. on Tax’n, 110th Cong., Present Law and Analysis Relating to
Tax Treatment of Partnership Carried Interests and Related Issues,
Part I, JCX-62-07, at 35 n.64 (J. Comm. Print 2007) (“[L]imited partner
status is determined under State law. Issues have arisen under present
law as to the proper [self-employment] tax treatment of individuals who
may be limited partners under State law but who participate in the
management and operation of the partnership.”). 8 Furthermore,
Treasury has yet to issue any final or temporary regulation defining
“limited partner” under section 1402(a)(13).

       In 2011 we were called upon to determine the scope of the limited
partner exception. We applied statutory construction principles to
determine whether partners in an LLP should be considered limited
partners under section 1402(a)(13). See Renkemeyer, 136 T.C. 137. In
Renkemeyer, 136 T.C. at 150, we analyzed the legislative history of
section 1402(a)(13) and concluded that its intent “was to ensure that
individuals who merely invested in a partnership and who were not
actively participating in the partnership’s business operations . . . would
not receive credits towards Social Security coverage.” We further found
that “[t]he legislative history . . . does not support a holding that
Congress contemplated excluding partners who performed services for a
partnership in their capacity as partners (i.e., acting in the manner of
self-employed persons), from liability for self-employment taxes.”
Renkemeyer, 136 T.C. at 150. Lastly, we held that the partners in that
case were not limited partners for purposes of section 1402(a)(13)
because their “distributive shares arose from legal services . . .
performed on behalf of the law firm” and not “as a return on the
partners’ investments.” Renkemeyer, 136 T.C. at 150.

       In Renkemeyer we specifically applied a functional analysis test
to determine whether the limited partner exception applied. But that
case specifically dealt with an LLP and not a limited partnership as
present here. While there have been subsequent opinions applying
Renkemeyer to determine whether taxpayers in passthrough entities are

        8 Joint Committee on Taxation reports are not considered legislative history

and carry persuasive weight similar to law review articles. See Gregory v.
Commissioner, 149 T.C. 43, 55 (2017) (noting that the Joint Committee on Taxation’s
commentary on tax laws after Congress enacts them does “not inform the decisions of
the members of Congress who vot[e] in favor of the [law]” and “[t]he Supreme Court
has told us such ‘[p]ost-enactment legislative history . . . is not a legitimate tool of
statutory interpretation,’” but instead is as persuasive as law review articles
(alterations in original) (first quoting United States v. Woods, 571 U.S. 31, 48 (2013);
and then quoting Bruesewitz v. Wyeth LLC, 562 U.S. 223, 242 (2011))).
                                        10

limited partners under section 1402(a)(13), we have not addressed
whether a limited partner in a state law limited partnership must
satisfy a functional analysis test to be entitled to the limited partner
exception. 9 See, e.g., Castigliola v. Commissioner, T.C. Memo. 2017-62,
at *7–14 (finding professional LLC members not limited partners for
purposes of section 1402(a)(13)).

       B.      Parties Arguments

       Petitioner contends that Mr. Mandelblatt, Mr. Kapadia, and
Mr. Friedman are state law limited partners and therefore their
distributive shares of income are excluded from net earnings from self-
employment under section 1402(a)(13). Petitioner argues that because
Soroban is a state law limited partnership and its Limited Partnership
Agreement identified Mr. Mandelblatt, Mr. Kapadia, and Mr. Friedman
as limited partners, section 1402(a)(13) is satisfied.

       The Commissioner disagrees, arguing that the distributive shares
of income of limited partners in state law limited partnerships are not
automatically exempt from self-employment income. He asserts that the
Court must apply a functional analysis test, similar to the test outlined
in Renkemeyer and subsequent cases, to determine whether individuals
are limited partners pursuant to section 1402(a)(13).

      We agree with the Commissioner. A functional analysis test
should be applied when determining whether the limited partner
exception under section 1402(a)(13) applies to limited partners in state
law limited partnerships.

       C.      Whether Soroban’s Partners are Limited Partners for
               Purposes of Section 1402(a)(13)

       Section 1402(a)(13) excludes from net earnings from self-
employment “the distributive share of any item of income or loss of a
limited partner, as such.” (Emphasis added.) Neither section 1402(a)(13)
nor applicable regulations define the phrase “limited partner, as such.”
Therefore, we use principles of statutory construction to ascertain
Congress’s intent.

        9 In Joseph v. Commissioner, T.C. Memo. 2020-65, at *60 n.9, we declined to

answer whether a de jure limited partner must satisfy Renkemeyer’s functional
analysis test to be entitled to the limited partner exclusion.
                                    11

       For statutory interpretation, we begin with the text of the statute.
See Ross v. Blake, 578 U.S. 632, 638 (2016). It is a well-established rule
of construction that if a statute does not define a term, the term is to be
given its ordinary meaning at the time of enactment. Perrin v. United
States, 444 U.S. 37, 42 (1979); Gates v. Commissioner, 135 T.C. 1, 6
(2010). And the canon against surplusage helps us determine that
meaning.

       Under the canon against surplusage, we give effect to every clause
and word of a statute. United States v. Menasche, 348 U.S. 528, 538–39
(1955). “When construing a statute, the Court must interpret it ‘so as to
avoid rendering any part of the statute meaningless surplusage.’”
Growmark, Inc. & Subs. v. Commissioner, No. 23797-14, 160 T.C., slip
op. at 11 (May 16, 2023) (citing 15 W. 17th St. LLC v. Commissioner, 147
T.C. 557, 586 (2016)); see also Tucker v. Commissioner, 135 T.C. 114, 154
(2010) (“[W]e decline to read words out of the statute; rather, we attempt
to give meaning to every word that Congress enacted . . . .”), aff’d, 676
F.3d 1129 (D.C. Cir. 2012).

       Turning to the statute in question, we find that the limited
partner exception does not apply to a partner who is limited in name
only. If Congress had intended that limited partners be automatically
excluded, it could have simply said “limited partner.” By adding “as
such,” Congress made clear that the limited partner exception applies
only to a limited partner who is functioning as a limited partner.

       Petitioner’s reliance on legislative history to overcome the plain
meaning of the statute is unavailing. To the extent legislative history
might be used to shed light on the meaning of the phrase “limited
partner, as such,” it confirms our conclusion. Congress enacted section
1402(a)(13) to exclude earnings from a mere investment. It intended for
the phrase “limited partners, as such” used in section 1402(a)(13) to
refer to passive investors.

       Petitioner points to H.R. Rep. No. 95-702, pt. 1, at 11, as reprinted
in 1977 U.S.C.C.A.N. at 4168, as support, noting that it states that
section 1402(a)(13) was intended “to exclude for coverage purposes
certain earnings which are basically of an investment nature.” But
Congress’s express text makes clear that it was looking to the nature of
the earnings. Congress intended section 1402(a)(13) to apply to partners
that are passive investors.
                                          12

       Next petitioner cites the Sense of the Senate Resolution for
support. Through that resolution, the Senate expressed its view that
Treasury’s attempt to define limited partner exceeded its authority. But
Treasury’s proposed regulation had several criteria that might have led
to a limited partner’s earnings’ being subject to self-employment tax,
even if the person was a passive investor. One such example is merely
being personally liable for partnership debts. Prop. Treas. Reg.
§ 1.1402(a)-2(h)(2)(i), 62 Fed. Reg. at 1704. The Senate’s concern was
“that an individual meeting any one of these three criteria will be
treated as a general partner.” H.R. 2014, 105th Cong., 143 Cong. Rec.
S6694, S6774, S6819. The Senate’s concern about the criteria set forth
in Treasury’s proposed regulation does not override the plain text of the
statute.

        Lastly, petitioner relies on a Joint Committee on Taxation report
that states: “A special rule applies for limited partners of a partnership.”
Staff of J. Comm. on Tax’n, 110th Cong., Present Law and Analysis
Relating to Tax Treatment of Partnership Carried Interests and Related
Issues, Part I, JCX-62-07, at 35. In a footnote from that sentence, that
report explains that “limited partner status is determined under State
law.” Id. at 35 n.64. We find this unpersuasive. The report addresses
only the meaning of the words “limited partner” and not the phrase
“limited partner, as such.” It is those latter words that narrow the scope
of the limited partner exception, which the Joint Committee Report does
not address. To the extent one might read the Joint Committee on
Taxation Report more broadly, it does not constitute legislative history
and carries no more weight than a law review article. Gregory, 149 T.C.
at 55.

        Petitioner puts forth myriad other arguments to support its
definition of limited partner, but none is persuasive. Petitioner cites
section 469 and compares its rules and regulations with section
1402(a)(13), but we do not find the sections analogous. Petitioner cites
dicta out of context. 10 Lastly, petitioner points to the 2016 Instructions
for Form 1065 at 2 and 2017 Instructions for Form 1065 at 3 as support
for its definition. The instructions state: “A limited partner is a partner
in a partnership formed under a state limited partnership law, whose

        10 For example, petitioner cites Duffy as a case that “recognizes that section

1402(a)(13)’s exception applies to limited partners in a limited partnership.” But Duffy
merely recites the rule of section 1402(a)(13). It makes no determination as to the
meaning of “limited partner, as such.” Duffy v. Commissioner, T.C. Memo. 2020-108,
at *50 n.16.
                                    13

personal liability for partnership debts is limited to the amount of money
or other property that the partner contributed or is required to
contribute to the partnership.” But this definition is provided as part of
the “General Instructions” and “Definitions.” This is not, and does not
purport to be, a definition for purposes of self-employment tax. In
discussion of self-employment tax, the instructions state: “Generally, a
limited partner’s share of partnership income (loss) isn’t included in net
earnings (loss) from self-employment.” 2016 Instructions for Form 1065
at 34; 2017 Instructions for Form 1065 at 36. Use of the qualifier
“generally” makes clear that it is not always true that a limited partner’s
share of partnership income is excluded from net earnings from self-
employment.

III.   Partnership Items

       Having concluded that we must examine the functions and roles
of the limited partners in the partnership to determine whether their
shares of earnings are excluded from net earnings from self-
employment, we must address whether that examination must happen
in these partnership-level proceedings or await a partner-level
proceeding.

       A.    Jurisdiction

       Like other federal courts, the Tax Court is a court of limited
jurisdiction and can exercise its jurisdiction only to the extent provided
by Congress. I.R.C. § 7442. Furthermore, like other courts, we always
have jurisdiction to determine whether we have jurisdiction. See
Meserve Drilling Partners, Reg’l Res., Inc. v. Commissioner, T.C. Memo.
1996-72, 71 T.C.M. (CCH) 2146, 2147, aff’d, 152 F.3d 1181 (9th Cir.
1998). The Tax Court has jurisdiction over a TEFRA partnership-level
proceeding when the tax matters partner or another eligible partner
timely petitions the Court for a readjustment of partnership items.
I.R.C. § 6226(a) and (b). And in such a proceeding, we generally have
jurisdiction to redetermine partnership items. I.R.C. § 6226(f). Whether
we may inquire into the substance of Mr. Mandelblatt’s, Mr. Kapadia’s,
and Mr. Friedman’s roles and activities at Soroban for the purpose of
determining whether the limited partner exception of section
1402(a)(13) applies turns on the question of whether this determination
is a partnership item.
                                   14

      B.     The TEFRA Procedures

       The unified audit and litigation procedures were enacted as part
of TEFRA. The TEFRA procedures provide a method for making
adjustments at the partnership level. Specifically, section 6221 provides
that “the tax treatment of any partnership item (and the applicability of
any penalty, addition to tax, or additional amount which relates to an
adjustment to a partnership item) shall be determined at the
partnership level.”

       The procedures for determining partnership items and affected
items differ. Partnership items are those items that are more properly
determined at the partnership level, whereas affected items are items
that are affected by partnership items. I.R.C. § 6231(a)(3), (5).
Generally, the Commissioner is precluded from assessing liabilities
attributable to partnership items until after a partnership-level
proceeding. I.R.C. § 6225(a); Grigoraci v. Commissioner, T.C. Memo.
2002-202, 84 T.C.M. (CCH) 186, 189. Adjustments to affected items that
require a partner-level determination are made in a separate deficiency
proceeding after the conclusion of the partnership-level proceeding.
I.R.C. § 6230(a); Grigoraci, 84 T.C.M. (CCH) at 189; see also N.C.F.
Energy Partners v. Commissioner, 89 T.C. 741, 744–45 (1987) (finding
adjustments to affected items dependent on factual determinations,
other than a computation, are to be made in partner-level proceedings).

      Section 6231(a)(3) defines a partnership item as “any item
required to be taken into account for the partnership’s taxable year
under any provision of subtitle A to the extent regulations prescribed by
the Secretary provide that, for purposes of this subtitle, such item is
more appropriately determined at the partnership level than at the
partner level.” Therefore, a partnership item is an item (1) that is
required to be taken into account for the partnership’s taxable year
under subtitle A, and (2) that regulations provide is more appropriately
determined at the partnership level. Treasury Regulation
§ 301.6231(a)(3)-1 provides a list of these items.

       The first issue is easily resolved. Section 1402 is found in
subtitle A. We have found that subtitle A requires a partnership to
separately state “the amount of income that would be [net earnings from
self-employment] in the hands of the ultimate recipients if those
recipients were in fact individuals.” Olsen-Smith, Ltd. v. Commissioner,
T.C. Memo. 2005-174, 90 T.C.M (CCH) 64, 66; see I.R.C. §§ 1401 and
1402. More specifically, a partnership is required to determine the entity
                                    15

status of its direct partners and “to report perfunctorily its ordinary
income as [net earnings from self-employment] except to the extent that
the ordinary income was allocated to a direct partner that was a limited
partner.” Olsen-Smith, 90 T.C.M (CCH) at 66. Therefore, the only issue
we must consider is whether the disputed issue is an item that the
Treasury regulation provides is an item more appropriately determined
at the partnership level.

       This question is easily resolved. Treasury Regulation
§ 301.6231(a)(3)-1 identifies items that are partnership items because
they are more appropriately determined at the partnership level. Most
relevant to the present inquiry is Treasury Regulation § 301.6231(a)(3)-
1(b), which provides:

             (b) Factors that affect the determination of
      partnership items. The term “partnership item” includes
      the accounting practices and the legal and factual
      determinations that underlie the determination of the
      amount, timing, and characterization of items of income,
      credit, gain, loss, deduction, etc.

A functional inquiry into the roles and activities of Soroban’s individual
partners as required by section 1402(a)(13) involves factual
determinations that are necessary to determine Soroban’s aggregate
amount of net earnings from self-employment. See, e.g., Gluck v.
Commissioner, T.C. Memo. 2020-66, at *14–15 (finding whether a
partnership owned a building a legal and factual determination
pursuant to Treasury Regulation § 301.6231(a)(3)-1(b) when that
partnership is required to report its gross rents as income), aff’d, No. 21-
867, 2022 WL 802766 (2d Cir. Mar. 17, 2022). Accordingly, the
functional inquiry into their roles is a partnership item and appropriate
for these proceedings.

IV.   Conclusion

       The Court must apply a functional analysis test to determine
whether a partner in a state law limited partnership is a “limited
partner, as such” for purposes of section 1402(a)(13). For a partnership
that is subject to TEFRA, the application of the functional analysis test
is a partnership item that we have jurisdiction to determine in a TEFRA
proceeding. Accordingly, we will deny petitioner’s Motion for Summary
Judgment and grant the Commissioner’s Motion for Partial Summary
Judgment.
                            16

To reflect the foregoing,

An appropriate order will be issued.