If you are the "tax matters person" then you would not qualify for limited partner treatment regardless of how the partnership agreement is written.
First, the partnership would need to be a Limited Partnership (LP) under state law. Only a Limited Partnership can have Limited Partners. The difference comes down to passive income (no self-employment tax) vs. ordinary income (earned income, self-employment tax).
Even if the business is registered and files as a Limited Partnership, a partner listed as a Limited Partner in the paperwork might still be treated as a general partner for self-employment tax purposes. With the proposed regulations 1.1402(a)-2 being on hold indefinitely, the IRS determines Limited Partner status based on case law in your particular state. If someone can sign contracts, including signing off on the tax return, then they would have involvement in management of the business. It would be difficult to support a position that your role is that of a Limited Partner.
There are ways to have a Limited Partner that can get paid for services either to the partnership or on behalf of the partnership. These services cannot be This needs to be laid out in the partnership agreement and make the statement that it is a guaranteed payment without regard to income and that the guaranteed payment is in exchange for the partner's services. In that case, the guaranteed payments would be subject to self-employment tax but the remaining income(loss) would be passive.
If this is still an issue, there have been several recent court cases. Have your CPA, or other qualified tax professional, look into these recent cases.
- Soroban Capital Partners v. Commissioner, 161 TC No.12
- Renkemeyer v. Commissioner (136 T.C. 137)
https://www.thetaxadviser.com/issues/2024/may/limited-partners-and-self-employment-tax-a-new-test.ht...
https://www.thetaxadviser.com/issues/2024/mar/sec-1402a13-and-limited-partnerships.html
