The Internal Revenue Service has one upped the hedge-fund and asset-management industries in a case that could bring higher taxes for many fund managers, according to a report by the Wall Street Journal. The ruling in question could require managers to pay self-employment taxes of more than 3% on much of their income.
The report cited the hearing, noting that though many fund managers are considered “limited partners” under state laws, that doesn’t automatically mean they qualify for an exception that limited partners get from federal self-employment taxes. The case was ruled by Judge Ronald Buch.
According to the report, the ruling was a loss for Soroban Capital Partners, a New York-based hedge-fund firm with $10bn in AUM. The government has made similar arguments in other cases, including one against Point72 Asset Management, run by Steve Cohen, the report added.
If the opinion stands through the additional legal battles that are expected and is applied broadly, it would close off a popular technique that lets them exclude millions of dollars in income from self-employment taxes and related levies that others must pay.