[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.753-1]

[Page 567-568]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Determination of Tax Liability--Table of Contents
 
Sec. 1.753-1  Partner receiving income in respect of decedent.

    (a) Income in respect of a decedent under section 736(a). All 
payments coming within the provisions of section 736(a) made by a 
partnership to the estate or other successor in interest of a deceased 
partner are considered income in respect of the decedent under section 
691. The estate or other successor in interest of a deceased partner 
shall be considered to have received income in respect of a decedent to 
the extent that amounts are paid by a third person in exchange for 
rights to future payments from the partnership under section 736(a). 
When a partner who is receiving payments under section 736(a) dies, 
section 753 applies to any remaining payments under section 736(a) made 
to his estate or other successor in interest.
    (b) Other income in respect of a decedent. When a partner dies, the 
entire portion of the distributive share which is attributable to the 
period ending with the date of his death and which is taxable to his 
estate or other successor constitutes income in respect of a decedent 
under section 691. This rule applies even though that part of the 
distributive share for the period before death which the decedent 
withdrew is not included in the value of the decedent's partnership 
interest for estate tax purposes. See paragraph (c) (3) of Sec. 1.706-
1.
    (c) Example. The provisions of this section may be illustrated by 
the following example:

    Example. A and the decedent B were equal partners in a business 
having assets (other than money) worth $40,000 with an adjusted basis of 
$10,000. Certain partnership business was well advanced towards 
completion before B's death and, after B's death but before the end of 
the partnership year, payment of

[[Page 568]]

$10,000 was made to the partnership for such work. The partnership 
agreement provided that, upon the death of one of the partners, all 
partnership property, including unfinished work, would pass to the 
surviving partner, and that the surviving partner would pay the estate 
of the decedent the undrawn balance of his share of partnership earnings 
to the date of death, plus $10,000 in each of the three years after 
death. B's share of earnings to the date of his death was $4,000, of 
which he had withdrawn $3,000. B's distributive share of partnership 
income of $4,000 to the date of his death is income in respect of a 
decedent (although only the $1,000 undrawn at B's death will be 
reflected in the value of B's partnership interest on B's estate tax 
return). Assume that the value of B's interest in partnership property 
at the date of his death was $22,000, composed of the following items: 
B's one-half share of the assets of $40,000, plus $2,000, B's interest 
in partnership cash. It should be noted that B's $1,000 undrawn share of 
earnings to the date of his death is not a separate item but will be 
paid from partnership assets. Under the partnership agreement, A is to 
pay B's estate a total of $31,000. The difference of $9,000 between the 
amount to be paid by A ($31,000) and the value of B's interest in 
partnership property ($22,000) comes within section 736(a) and, thus, 
also constitutes income in respect of a decedent. (However, the $17,000 
difference between the $5,000 basis for B's share of the partnership 
property and its $22,000 value at the date of his death does not 
constitute income in respect of a decedent.) If, before the close of the 
partnership taxable year, A pays B's estate $11,000, of which they agree 
to allocate $3,000 as the payment under section 736(a), B's estate will 
include $7,000 in its gross income (B's $4,000 distributive share plus 
$3,000 payment under section 736(a)). In computing the deduction under 
section 691(c), this $7,000 will be considered as the value for estate 
tax purposes of such income in respect of a decedent, even though only 
$4,000 ($1,000 of distributive share not withdrawn, plus $3,000, payment 
under section 736(a)) of this amount can be identified on the estate tax 
return as part of the partnership interest.

    (d) Effective date. The provisions of section 753 apply only in the 
case of payments made with respect to decedents whose death occurred 
after December 31, 1954. See section 771(b)(4) and paragraph (b)(4) of 
Sec. 1.771-1.