Have a Tax Question? Ask a Tax Expert
Withing a general partnership - all partners are general partners.
If that is a limited partnership - at least ONE partner must be a general partner and other may be limited partners.
Only for active partners who actively participated in the partnership business activity - the income is subject to self-employment tax,
If the partner is passive and NOT actively participated - income is passive income - and not subject to self-employment tax.
That is correct if that is passive activity - income is not subject to self-employment tax.
(c) Passive activity defined
For purposes of this section—
(1) In generalThe term “passive activity” means any activity—(A)
which involves the conduct of any trade or business, and
(B) in which the taxpayer does not materially participate.
(h) Material participation definedFor purposes of this section—
(1) In general
A taxpayer shall be treated as materially participating in an activity only if the taxpayer is involved in the operations of the activity on a basis which is—
(B) continuous, and
(2) Interests in limited partnerships
Except as provided in regulations, no interest in a limited partnership as a limited partner shall be treated as an interest with respect to which a taxpayer materially participates.