§736 Payments to a retiring partner or a deceased partner’s successor in interest

Summary

Treats payments made when a partner retires or when a partner dies as either the partner’s share of partnership income, a guaranteed payment, or a property distribution, depending on how the payment is figured. If the amount is worked out based on the partnership’s income, it counts as the partner’s share of income. If the amount is fixed without regard to partnership income, it counts as a guaranteed payment under section 707(c). If, under rules set by the Secretary, the payment is really a purchase of the partner’s interest in partnership property, it is treated as a distribution instead of income or a guaranteed payment. Amounts paid for unrealized receivables (section 751(c)) or for goodwill are not treated as purchases of property unless the partnership agreement says goodwill will be paid for. That rule only applies if capital is not a material income-producing factor and the partner was a general partner.