US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 736

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

(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—
(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
(2)
as a guaranteed payment described in section 707(c) if the amount thereof is determined without regard to the income of the partnership.
(b)

Payments for interest in partnership

(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).

(2)

Special rules

For purposes of this subsection, payments in exchange for an interest in partnership property shall not include amounts paid for—
(A)
unrealized receivables of the partnership (as defined in section 751(c)), or
(B)
good will of the partnership, except to the extent that the partnership agreement provides for a payment with respect to good will.
(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.

Aug. 16, 1954, ch. 73668A Stat. 248Pub. L. 94–455, title XIX, § 1906(b)(13)(A)90 Stat. 1834Pub. L. 95–600, title VII, § 701(u)(13)(B)92 Stat. 2918Pub. L. 103–66, title XIII, § 13262(a)107 Stat. 541(, ; , , ; , , ; , (b)(2)(B), , .)

Editorial Notes

Amendments

Pub. L. 103–66, § 13262(a)1993—Subsec. (b)(3). , added par. (3).

Pub. L. 103–66, § 13262(b)(2)(B)Subsec. (c). , 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).”

Pub. L. 95–6001978—Subsec. (c). added subsec. (c).

Pub. L. 94–4551976—Subsec. (b)(1). 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

“(1)

In general .—

section 751 of this titleThe amendments made by this section [amending this section and ] 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.”
, , , provided that:

Effective Date of 1978 Amendment

Pub. L. 95–600section 701(u)(13)(C) of Pub. L. 95–600section 751 of this titleAmendment by applicable to transfers beginning after , and to sales, exchanges, and distributions taking place after , see , set out as a note under .