Bloomberg Bloomberg
Comprehensive Tax Research. Practitioner to Practitioner. ®

Sec. 736. Payments To A Retiring Partner Or A Deceased Partner's Successor In Interest

I.R.C. § 736(a) Payments Considered As Distributive Share Or Guaranteed Payment
Payments made in liquidation of the interest of a retiring partner or a deceased partner shall, except as provided in subsection (b), be considered—
I.R.C. § 736(a)(1)
as a distributive share to the recipient of partnership income if the amount thereof is determined with regard to the income of the partnership, or
I.R.C. § 736(a)(2)
as a guaranteed payment described in section 707(c) if the amount thereof is determined without regard to the income of the partnership.
I.R.C. § 736(b) Payments For Interest In Partnership
I.R.C. § 736(b)(1) General Rule
Payments made in liquidation of the interest of a retiring partner or a deceased partner shall, to the extent such payments (other than payments described in paragraph (2)) are determined, under regulations prescribed by the Secretary, to be made in exchange for the interest of such partner in partnership property, be considered as a distribution by the partnership and not as a distributive share or guaranteed payment under subsection (a).
I.R.C. § 736(b)(2) Special Rules
For purposes of this subsection, payments in exchange for an interest in partnership property shall not include amounts paid for—
I.R.C. § 736(b)(2)(A)
unrealized receivables of the partnership (as defined in section 751(c)), or
I.R.C. § 736(b)(2)(B)
good will of the partnership, except to the extent that the partnership agreement provides for a payment with respect to good will.
I.R.C. § 736(b)(3) Limitation On Application Of Paragraph (2)
Paragraph (2) shall apply only if—
I.R.C. § 736(b)(3)(A)
capital is not a material income-producing factor for the partnership, and
I.R.C. § 736(b)(3)(B)
the retiring or deceased partner was a general partner in the partnership.
(Added Aug. 16, 1954, ch. 736, 68A Stat. 248; Oct. 4, 1976, Pub. L. 94-455, title XIX, 1906(b)(13)(A), 90 Stat. 1834; amended Nov. 6, 1978, Pub. L. 95-600, title VII, 701(u)(13)(B), 92 Stat. 2918; Aug. 10, 1993, Pub. L. 103-66, title XIII, Sec. 13262, 107 Stat. 312.)
1993—Subsec. (b). Pub. L. 103-66, Sec. 13262(a), amended subsec. (b) by adding par. (3).
Subsec. (c). Pub. L. 103-66, Sec. 13262(b)(2)(B), struck subsec. (c). Before being struck, it read as follows:
“(c) Cross reference.—For limitation on the tax attributable to certain gain connected with section 1248 stock, see section 751(e).”
1978--Subsec. (c). Pub. L. 95-600 added subsec. (c).
1976--Subsec. (b)(1). Pub. L. 94-455 struck out “or his delegate" after “Secretary”.
Amendments by Sec. 13262 of Pub. L. 103-66 effective in the case of partners retiring or dying on or after January 5, 1993. Section 13262(c)(2) of Pub. L. 103-66 provided:
“(2) BINDING CONTRACT EXCEPTION.--The amendments made by this section shall not apply to any partner retiring on or after January 5, 1993, if a written contract to purchase such partner's interest in the partnership was binding on January 4, 1993, and at times thereafter before such purchase.”
Amendment by Pub. L. 95-600 applicable to transfers beginning after Oct. 9, 1975, and to sales, exchanges, and distributions taking place after Oct. 9, 1975, see section 701(u)(13)(C) of Pub. L. 95-600, set out as a note under section 751 of this title.
Amendment by Pub. L. 94-455 effective on February 1, 1977.