Starker 1031 Exchange
T.J. Starker And The 1031 Exchange
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A 1031
tax exchange (commonly referred to as a "Starker Exchange") was so aptly
named after a 1979 case (involving T.J. Starker) which "broke the mold" for
1031 tax-deferred treatment in like-kind exchanges...
Prior to
the Starker case, the IRS thought all exchanges had to be done simultaneously
(i.e. direct swaps between parties).
T.J. Starker thought differently. He was a wealthy land-owner who entered
into a "land-exchange agreement" to give up his relinquished property (which was
a large holding of timber-land in Columbia, Oregon) to a company named, "Crown Zellerbach Corporation". In return, "Crown Zellerbach"
was to give T.J. replacement-properties - located in Washington and Oregon -
during the next 5 years (T.J. was allowed to identify his replacement-properties during this 5
year period).
What was different about this transaction is that
T.J. Starker was extending the 1031 process over 5 years (rather than a
simultaneous event) which the IRS found objectionable - however, when the case
was litigated, T.J. Starker won - giving us the first
deferred exchange!
Later, congress issued treasury regulations
(1031(a)(3)) which limited the exchange period to just 180 days.
1031 Tip: 2
factors that the court noted - were that T.J. Starker intended these
dealings with "Crown Zellerbach" to be structured such that he only received
like-kind properties. Moreover, T.J. never handled any cash which supported
his argument that this was not a sale - and therefore qualified for 1031
non-recognition treatment.
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