Rev. Rul. 54-31

Further consideration has been given to the consequence of a change in the membership of a partnership resulting from the death, withdrawal, substitution, or addition of a partner, for the purposes of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act.

S.S.T. 199, C.B. 1937-2, 405, held in part that a new employment begins, for the purposes of Titles VIII and IX of the .social Security Act where a partnership business is continued after the death or retirement of a partner. (Titles VIII and IX of the Social Security Act have been incorporated in ch. 9 the Internal Revenue Code, and are cited as the Federal Insurance Contributions Act and the Federal Unemployment Tax Act.) S.S.T. 354, C.B. 1939-1 (Part 1), 294 held that S.S.T. 199 applied only where the business of the partnership is continued, that services performed in winding up a partnership's affairs were not to be regarded as being performed in a new employment. Services performed in carrying on the business of a new partnership, or in carrying on the business on behalf of a remaining partner, however, were to be regarded as services performed in a new employment.

In Rev. Rul. 144, C.B. 1953-2, 212, it is stated that, as defined in section 3797(a)(2) of the Internal Revenue Code, the term `partnership' for tax purposes is broader than the term under common law, the Uniform Partnership Act, or individual State laws. Accordingly, the Federal tax consequences of transactions involving partnerships and interest in partnerships will be determined upon the basis of their substance and in accordance with the Federal tax laws without regard to the technical refinements of State laws. Rev. Rul. 144 held 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.

In view of the foregoing, it is held 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 the purposes of the Federal Insurance Contributions Act and the Federal Unemployment Tax Act. Ordinarily the partnership will be treated as continuing where the business of the partnership, or a substantial portion thereof, is continued.

S.S.T. 199 and S.S.T. 354, supra , are modified to the extent that they are inconsistent with the foregoing. foregoing.

Under the authority contained in section 3791(b) of the Internal Revenue Code, the Internal Revenue Service will not require to provisions of this Revenue Ruling to be applied with respect to those changes in partnership interests which occurred prior to January 1, 1954.