Rev. Rul. 54-213

Advice is requested relative to the liability of a limited partner in a limited partnership in the State of Indiana for Federal withholding taxes due from the partnership.

In the instant case, the partnership was composed of two persons, a general partner and a limited partner. Bankruptcy proceedings which were filed against the general partner have been closed. There were no proceedings against the limited partner or the partnership itself; neither were they parties to the proceedings against the general partner. There remain unpaid Federal withholding taxes for the four quarters of the year 1951. The partnership was a bona fide limited partnership.

Section 50-121 of chapter 1, title 50, volume 10, part 1, of Burns Indiana Statutes, Annotated (1951 Replacement), provides that a limited partnership is a partnership formed by two or more persons having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership. Section 50-127 thereof provides that a limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business. And section 50-136(1)(a) provides that a limited partner shall not receive from a general partner or out of partnership property any part of his contribution until all liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them.

The above provisions show clearly that under Indiana law a limited partner is not liable above and beyond his contributions for the obligations of a limited partnership (which would include Federal withholding taxes due from such a partnership) unless he takes part in the control of the business. In the absence of a controlling Federal statute, the law of Indiana relative to the liability of a limited partner for debts of the limited partnership is considered to be determinative of the liability of a limited partner for Federal withholding taxes due from a limited partnership organized and operated under the law of that State.

In view of the foregoing, it is held that a limited partner, under the laws of the State of Indiana or of any other State having equivalent laws concerning limited partnerships, is not liable above and beyond his capital contribution for Federal withholding taxes due from such a partnership, providing there are no facts showing conduct on his part in connection with the partnership business which would render him liable as a general partner.