Tuesday, April 26, 2005
Philip F. Postlewaite (Northwestern) presented Anachronisms in Subchapter K of the Internal Revenue Code - Is it Time for Section 736 To Go? yesterday at the University of Washington as part of its Distinguished Scholars Series Showcasing Prominent Tax Academics and Commentators. Here is the abstract:
A partner can withdraw from a partnership either by selling his or her interest to another person or by receiving a liquidating distribution from the partnership. Section 736 classifies payments in liquidation of a partner's interest in a continuing partnership by dividing them into two broad categories: (1) payments that will be treated as regular distributions from the partnership, and (2) payments that will be treated as either a distributive share of partnership income (if based on partnership profits) or as a guaranteed payment (if determined without reference to partnership income). It's not the easiest Code provision through which to navigate, and perhaps it is outdated given other specific Code provisions enacted after §736's birth in 1954.
Professor Postlewaite asks how a provision like §736, "with its limited utility, devastating complexity, and confusing (at best) policy implications accompanied by multiple calls for its repeal" can remain in the Internal Revenue Code. He will also discuss "the steps, both specific and structural, that can be taken to prevent similar statutory atrocities from happening in the future."