# 26 U.S.C. § 736: Payments to a retiring partner or a deceased partner’s successor in interest

Source: OLRC release point 119-134 <https://uscode.house.gov/us/usc/119-134/t26/s736>. Cite pinpoints as 26 U.S.C. § 736(a)(1).

## § 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—

**§ 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

**§ 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.

## § 736(b) Payments for interest in partnership

**§ 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).

**§ 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—

**§ 736(b)(2)(A)** unrealized receivables of the partnership (as defined in section 751(c)), or

**§ 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.

**§ 736(b)(3) Limitation on application of paragraph (2).** Paragraph (2) shall apply only if—

**§ 736(b)(3)(A)** capital is not a material income-producing factor for the partnership, and

**§ 736(b)(3)(B)** the retiring or deceased partner was a general partner in the partnership.

## Regulations

- [Treas. Reg. § 1.736-1](/26/reg/1.736-1.md): Payments to a retiring partner or a deceased partner's successor in interest. (interprets § 736)

## Leading cases

- [Bernard D. Spector v. Commissioner, 641 F.2d 376 (5th Cir. 1981)](https://www.courtlistener.com/opinion/387243/bernard-d-spector-v-commissioner-of-internal-revenue/)
- [Estate of Quirk v. Commissioner, 928 F.2d 751 (6th Cir. 1991)](https://www.courtlistener.com/opinion/8996606/estate-of-quirk-v-commissioner-of-internal-revenue/)
- [Commissioner v. Jackson Investment Company, Commissioner v. West Shore Company, 346 F.2d 187 (9th Cir. 1965)](https://www.courtlistener.com/opinion/268121/commissioner-of-internal-revenue-v-jackson-investment-company/)

## Proposed regulations (not in force)

- [Prop. Treas. Reg. § 1.736-1](/26/prop/1.736-1_2014-25487.md): [Amended] (REG-151416-06, proposed 2014-11-03)
- [Prop. Treas. Reg. § 1.736-1](/26/prop/1.736-1_2015-17828.md): Payments to a retiring partner or a deceased partner's successor in interest. (REG-105346-03, proposed 2015-07-23)

## Connections

Cites: § 707 Transactions between partner and partnership; § 751 Unrealized receivables and inventory items

Cited by: § 357 Assumption of liability; § 731 Extent of recognition of gain or loss on distribution; § 751 Unrealized receivables and inventory items; § 753 Partner receiving income in respect of decedent

## Amendments

- 1954-08-16: [Act Aug. 16, 1954, ch. 736](/26/act/1954-ch736.md), 68A Stat. 248
- 1976-10-04: [Pub. L. 94-455](/26/act/94-455.md), 90 Stat. 1834
- 1978-11-06: [Pub. L. 95-600](/26/act/95-600.md), 92 Stat. 2918
- 1993-08-10: [Pub. L. 103-66](/26/act/103-66.md), 107 Stat. 541