Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 55-93

1955-1 C.B. 404

Sec. 6031

IRS Headnote

Interest in a partnership acquired by the decedent's widow and subsequently transferred to her son, resulting in another change in membership, does not, in itself, terminate the partnership for Federal income tax or employment tax purposes.

Full Text

Rev. Rul. 55-93

Advice has been requested as to whether the transfer of a deceased partner's interest in a partnership by his widow terminates such partnership, for Federal income tax purposes under the provisions of the Internal Revenue Code of 1939 and for purposes of the Federal Insurance Contributions Act (subchapter A, chapter 9, Internal Revenue Code of 1939) and the Federal Unemployment Tax Act (subchapter C, chapter 9, Internal Revenue Code of 1939).

In the instant case A, the decedent, bequeathed to his widow his one-half interest in a partnership which he owned with B. The widow, for valuable consideration, transferred this interest to her son who continued in the partnership with B, the remaining partner.

Revenue Ruling 144, C.B. 1953-2, 212, and  Revenue Ruling 54-31, C.B. 1954-1, 212, hold 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 and employment tax purposes, respectively, where the business of the partnership or a substantial portion thereof is continued. That principle has been held to be applicable where the estate of the deceased partner continued the decedent's interest in a partnership which consisted of only two partners. See Rev. Rul. 54-55, C.B. 1954-1, 153. Revenue Ruling 54-484, C.B. 1954-2, 242, provides that this principle also applies to limited partnerships.

Under the facts in the instant case, it is evident that the transfer of the decedent's  interest in the partnership by the widow to her son merely constituted another substitution in the partnership in accordance with Revenue Ruling 144, supra.

Accordingly, it is held that interest in a partnership acquired by the decedent's widow and subsequently transferred to her son resulting in another change in membership, does not, in itself, terminate the partnership for Federal income tax or employment tax purposes.

As in the cases of Revenue Rulings 144 and  54-31, supra, the Internal Revenue Service will not require this Revenue Ruling to be applied with respect to such a change in partnership interest which occurred prior to January 1, 1954. See Rev. Rul. 54-26, C.B. 1954-1, 153.