12
section 162(a). Alternatively, respondent determined that each
of the withdrawing partners received taxable guaranteed payments
in accordance with the partnership return filed by W&R.
Section 736(a) applies to payments made in liquidation of
the withdrawing partners’ interests.8 The phrase “liquidation of
a partner’s interest” means:
the termination of a partner’s entire interest in a
partnership by means of a distribution, or a series of
distributions, to the partner by the partnership. A
series of distributions will come within the meaning of
this term whether they are made in one year or in more
than one year. Where a partner’s interest is to be
liquidated by a series of distributions, the interest
will not be considered as liquidated until the final
distribution has been made.
Sec. 1.761-1(d), Income Tax Regs.
The severance agreements signed by Parson in 1993 and by
Handler in 1994 establish that each had withdrawn as members of
8 Sec. 736 provides in relevant part:
SEC. 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.
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