§736 Payments to a Retiring Partner or a Deceased Partner’s Successor in Interest

Summary

Treat payments made when a partner retires or when a partner dies either as part of that partner’s share of partnership income or as a guaranteed payment under section 707(c). Which rule applies depends on whether the payment amount is worked out with regard to the partnership’s income or without regard to the partnership’s income. If, under rules made by the Secretary, the money is paid in exchange for the partner’s share of partnership property, treat it as a distribution instead of as income or a guaranteed payment. Payments for unrealized receivables (see section 751(c)) or for goodwill (unless the partnership agreement says otherwise) are not treated as payments for property. That special property rule applies only if capital is not a material income-producing factor and the partner was a general partner.