Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 54-55

1954-1 C.B. 153

Section 6031

IRS Headnote

Effect of the death of a partner in the case of a partnership consisting of only two partners.

Full Text

Rev. Rul. 54-55

Advice is requested whether Rev. Rul. 144, C.B. 1953-2, 212, holding that a change in the membership of a partnership resulting from the death, withdrawal, substitution, or addition of a partner or a shift of interests among existing partners does not, in itself, effect a termination of a partnership for Federal income tax purposes, applies to a case where one of two partners dies.

In some cases the surviving partner and the estate of the deceased partner continue the business as a partnership within the meaning of section 3797(a)(2) of the Internal Revenue Code. In this situation the rule of Rev. Rul. 144 is applicable.

In other cases the partnership business is wound up over a period of time and the deceased partner's estate continues decedent's interest in the profits and losses of the business during the winding-up period. In this situation the partnership continues throughout such period. See Heiner v. Paul Mellon at al. , 304 U.S. 271, Ct. D. 1345, C.B. 1938-1, 349.

In other cases the surviving partner, pursuant to an obligation undertaken in the partnership agreement, purchases the decedent's interest in the partnership from the decedent's estate for an amount fixed or determinable as of the date of decedent's death. In this situation the partnership terminates for Federal income tax purposes on the date of decedent's death.

Since this Revenue Ruling applies the principles stated in Rev. Rul. 144 to the facts herein, it will be given nonretroactive application to the same extent as Rev. Rul. 144, and accordingly, pursuant to the authority contained in section 3791(b) of the Code, the Internal Revenue Service will not require this Revenue Ruling to be applied with respect to those changes in partnership interests which occurred prior to January 1, 1954. See, Rev. Rul. 54-26, page 153, this Bulletin.