# discussion how to apply the rules for the tax treatment of discontinuation in a partnership.

1. 1:What is a Code Sec. 736(b) payment? How are Code Sec. 736(b) payments treated?
2. 2:The XYZ partnership had the following balance sheet:
 Basis FMV Cash \$30,000 \$30,000 Accounts Receivable \$0 \$48,000 Land \$36,000 \$93,000 Goodwill \$0 \$15,000 \$66,000 \$186,000 Capital, X \$22,000 \$62,000 Capital, Y \$22,000 \$62,000 Capital, Z \$22,000 \$62,000 \$66,000 \$186,000
1. X receives a payment of \$62,000 cash upon his retirement from the partnership. X was a general partner, capital was not a material income-producing factor for the partnership, and the partnership agreement said nothing about making payments to a retiring partner for their share of goodwill. How would the retirement payment be treated by X and the partnership?
2. 3:The XYZ partnership had the following balance sheet:
 Basis FMV Cash \$30,000 \$30,000 Accounts Receivable \$0 \$48,000 Land \$36,000 \$93,000 Goodwill \$0 \$15,000 \$66,000 \$186,000 Capital, X \$22,000 \$62,000 Capital, Y \$22,000 \$62,000 Capital, Z \$22,000 \$62,000 \$66,000 \$186,000
1. In liquidation of his interest, X receives a distribution equal to 50% of partnership income for each of the first two years after his retirement. Partnership income was \$80,000 in each of those years. X was a general partner, capital was not a material income-producing factor for the partnership, and the partnership agreement specified that a retiring partner would be paid for their share of goodwill. How would the retirement payment be treated by X and the partnership?

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