Taxation of the Disposition of Partnership Interests: Time to Repeal I.R.C. Section 736

I. Introduction II. The Choice When a Partner Withdraws: Sale or Liquidation III. The Checkered History of Sections 736 and 741 ... A. Development of Objective Tests ... B. Application of the Objective Tests by the Court ... 1. The Economic Consequences Test ... 2. The Basis of Payments Test ... 3. Maker of the Payments Test ... 4. Source of Payments Test ... 5. Obligation of Payments Test ... 6. Intention of the Parties Test IV. The Advantages of Section 736 from a Policy Standpoint: Are They Appropriate? ... A. Trading of Tax Benefits ... B. Deductibility of Payments That Constitute Capital Expenditures ... C. Deduction of Payments That Amount to Mutual Insurance among Partners V. A Proposal for Change VI. Conclusio