---
kind: "section"
citation: "26 U.S.C. § 736"
title: "26"
title_heading: "Internal Revenue Code"
number: "736"
heading: "Payments to a retiring partner or a deceased partner’s successor in interest"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/736"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter K — Partners and Partnerships"
  - "Part II — Contributions, Distributions, and Transfers"
  - "Subpart B — Distributions by a Partnership"
---

# §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](/usc/26/856.md?p=f-1) of a retiring [partner](/usc/26/761.md?p=b) or a [deceased partner](/usc/26/1402.md?p=f-2) shall, except as provided in [subsection (b)](#b), be considered—
  - (1) as a distributive share to the recipient of [partnership](/usc/26/761.md?p=a) income if the amount thereof is determined with regard to the income of the [partnership](/usc/26/761.md?p=a), or
  - (2) as a guaranteed payment described in [section 707(c)](/usc/26/707.md?p=c) if the amount thereof is determined without regard to the income of the [partnership](/usc/26/761.md?p=a).
- (b) **Payments for interest in partnership—**
  - (1) **General rule—** Payments made in liquidation of the [interest](/usc/26/856.md?p=f-1) of a retiring [partner](/usc/26/761.md?p=b) or a [deceased partner](/usc/26/1402.md?p=f-2) shall, to the extent such payments (other than payments described in [paragraph (2)](#b-2)) are determined, under regulations prescribed by the Secretary, to be made in exchange for the [interest](/usc/26/856.md?p=f-1) of such [partner](/usc/26/761.md?p=b) in [partnership](/usc/26/761.md?p=a) [property](/usc/26/317.md?p=a), be considered as a distribution by the [partnership](/usc/26/761.md?p=a) and not as a distributive share or guaranteed payment under [subsection (a)](#a).
  - (2) **Special rules—** For purposes of this subsection, payments in exchange for an [interest](/usc/26/856.md?p=f-1) in [partnership](/usc/26/761.md?p=a) [property](/usc/26/317.md?p=a) shall not include amounts paid for—
    - (A) unrealized receivables of the [partnership](/usc/26/761.md?p=a) (as defined in [section 751(c)](/usc/26/751.md?p=c)), or
    - (B) good will of the [partnership](/usc/26/761.md?p=a), except to the extent that the [partnership](/usc/26/761.md?p=a) agreement provides for a payment with respect to good will.
  - (3) **Limitation on application of paragraph (2)—** [Paragraph (2)](#b-2) shall apply only if—
    - (A) capital is not a material income-producing factor for the [partnership](/usc/26/761.md?p=a), and
    - (B) the retiring or [deceased partner](/usc/26/1402.md?p=f-2) was a general [partner](/usc/26/761.md?p=b) in the [partnership](/usc/26/761.md?p=a).

## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 248; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 95–600, title VII, § 701(u)(13)(B), Nov. 6, 1978, 92 Stat. 2918; Pub. L. 103–66, title XIII, § 13262(a), (b)(2)(B), Aug. 10, 1993, 107 Stat. 541.)

## Notes

### Editorial Notes

### Amendments

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), Aug. 10, 1993, 107 Stat. 541, provided that: 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 January 5, 1993. Binding contract exception.—The amendments made by this section shall not apply to any partner retiring on or after January 5, 1993, if a written contract to purchase such partner’s interest in the partnership was binding on January 4, 1993, and at all times thereafter before such purchase.”

### Effective Date of 1978 Amendment

Amendment by Pub. L. 95–600 applicable to transfers beginning after Oct. 9, 1975, and to sales, exchanges, and distributions taking place after Oct. 9, 1975, see section 701(u)(13)(C) of Pub. L. 95–600, set out as a note under section 751 of this title.