I am working with an individual who was a partner in a firm but left there as of 1/1/07. In mid 07 he received a payment for 2006 trailing receivables. The partnership operates on a cash basis of accounting. The payment he received is "unrealized receivable" according to IRS Pub 541. His accountant has told him he could contribute a retirement plan contribution to his former practice’s plan for this income. Does this sound right?

Not really. How was it reported? W-2 or 1099. If it was on W-2 he has some ground for deferral. But there is question of what is plan definintion of eligible participant to make contributions?

As a partner, the payment should be reported on Schedule K-1, not a 1099 or W-2. It is likely to be characterized as net earnings from self-employment, so it would typically be considered compensation under the plan. BUT, the individual may not be an eligible participant for 2007 as he or she may not have any hours of service. So, you need to look at the plan document to determine whether the income is eligible for any benefit under the plan.