Title 26 — Internal Revenue Code
Part II · Chapter 1 — Normal Taxes and Surtaxes
§ 736. Payments to a retiring partner or a deceased partner’s successor in interest
Statutory text
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—
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
as a guaranteed payment described in section 707(c) if the amount thereof is determined without regard to the income of the partnership.
Payments for interest in partnership
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).
Special rules
For purposes of this subsection, payments in exchange for an interest in partnership property shall not include amounts paid for—
unrealized receivables of the partnership (as defined in section 751(c)), or
good will of the partnership, except to the extent that the partnership agreement provides for a payment with respect to good will.
Limitation on application of paragraph (2)
Paragraph (2) shall apply only if—
capital is not a material income-producing factor for the partnership, and
the retiring or deceased partner was a general partner in the partnership.
Legislative history
Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.
Aug. 16, 1954, ch. 736, 68A Stat. 248 · 68A Stat. 248
Enacted · 26 U.S.C. § 736
Aug. 16, 1954, ch. 736, 68A Stat. 248
Source evidence
Code source credit
Aug. 16, 1954, ch. 736, 68A Stat. 248Pub. L. 94–455 title XIX § 1906(b)(13)(A) · 90 Stat. 1520
Struck · 26 U.S.C. § 736(b)(1)
Pub. L. 94–455 struck out “or his delegate” after “Secretary”
Source evidence
Code amendment note
Subsec. (b)(1). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.Enacted provision · exact public law section
(A) The Internal Revenue Code of 1954, as amended by this Act, is amended by striking out “Secretary or his delegate” each place it appears and inserting in lieu thereof “Secretary”.Pub. L. 95–600 title VII § 701(u)(13)(B) · 92 Stat. 2763
Added · 26 U.S.C. § 736(c)
Pub. L. 95–600 added subsec. (c)
Source evidence
Code amendment note
Subsec. (c). Pub. L. 95–600 added subsec. (c).Enacted provision · exact public law section
(B) 26 USC 736. Cross reference.— Section 736 (relating to payments to a retiring partner or a deceased partner’s successor in interest) is amended by adding at the end thereof the following new subsection: “(c) Cross Reference.— “For limitation on the tax attributable to certain gain connected with section 1248 stock, see section 751(e).”Revenue Reconciliation Act of 1993
Pub. L. 103–66 § 13262(a) · 107 Stat. 312
Added · 26 U.S.C. § 736(b)(3)
Pub. L. 103–66, § 13262(a), added par. (3)
Source evidence
Code amendment note
Subsec. (b)(3). Pub. L. 103–66, § 13262(a), added par. (3).Enacted provision · exact public law section
(a) Section 736(b) Not To Apply in Certain Cases.— Subsection (b) of section 736 (relating to payments for interest in partnership) is amended by adding at the end thereof the following 26 USC 736. new paragraph: “(3) Limitation on application of paragraph (2).— Paragraph (2) shall apply only if— “(A) capital is not a material income-producing factor for the partnership, and “(B) the retiring or deceased partner was a general partner in the partnership.”Effective date note
Pub. L. 103–66, title XIII, § 13262(c), Aug. 10, 1993, 107 Stat. 541, provided that:Revenue Reconciliation Act of 1993
Pub. L. 103–66 § 13262(b)(2)(B) · 107 Stat. 312
Struck · 26 U.S.C. § 736(c)
Pub. L. 103–66, § 13262(b)(2)(B), struck out heading and text of subsec. (c). Text read as follows: “For limitation on the tax attributable to certain gain connected with section 1248 stock, see section 751(e).”
Source evidence
Code amendment note
Subsec. (c). Pub. L. 103–66, § 13262(b)(2)(B), struck out heading and text of subsec. (c). Text read as follows: “For limitation on the tax attributable to certain gain connected with section 1248 stock, see section 751(e).”Enacted provision · exact public law section
(B) Section 736 is amended by striking subsection (c).Effective date note
Pub. L. 103–66, title XIII, § 13262(c), Aug. 10, 1993, 107 Stat. 541, provided that:
4 of 5 references resolved to an enrolled provision · 1 partial
Editorial Notes
Amendments1976–1993 · 3 rounds
1993
Subsec. (b)(3). Pub. L. 103–66, § 13262(a), added par. (3).
Subsec. (c). Pub. L. 103–66, § 13262(b)(2)(B), struck out heading and text of subsec. (c). Text read as follows: “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”.
Statutory Notes and Related Subsidiaries
Effective Date of 1993 Amendment
Pub. L. 103–66, title XIII, § 13262(c), , 107 Stat. 541, provided that:
“(1) In general.—
The amendments made by this section [amending this section and section 751 of this title] shall apply in the case of partners retiring or dying on or after .
“(2) Binding contract exception.—
The amendments made by this section shall not apply to any partner retiring on or after , if a written contract to purchase such partner’s interest in the partnership was binding on , and at all times thereafter before such purchase.”
Effective Date of 1978 Amendment
Amendment by Pub. L. 95–600 applicable to transfers beginning after , and to sales, exchanges, and distributions taking place after , see section 701(u)(13)(C) of Pub. L. 95–600, set out as a note under section 751 of this title.
Credits
1954–1993 · 4 acts
- 1954Aug. 16, 1954, ch. 736, 68A Stat. 248
- 1976Pub. L. 94–455, title XIX, § 1906(b)(13)(A), , 90 Stat. 1834
- 1978Pub. L. 95–600, title VII, § 701(u)(13)(B), , 92 Stat. 2918
- 1993Pub. L. 103–66, title XIII, § 13262(a), (b)(2)(B), , 107 Stat. 541.
Show as published
(Aug. 16, 1954, ch. 736, 68A Stat. 248; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), , 90 Stat. 1834; Pub. L. 95–600, title VII, § 701(u)(13)(B), , 92 Stat. 2918; Pub. L. 103–66, title XIII, § 13262(a), (b)(2)(B), , 107 Stat. 541.)