Let’s take our time machine back to 1967. As the story goes, T.J. Starker and some family members decided to convey 1,800 plus acres of (one can assume) lush Oregon timberland to a company called Crown Zellerbach Corporation. In exchange, Crown was obligated to acquire some property within five years, give it to the Starkers, and possibly throw in a little cash.
If you’re into decades old 9th Circuit decisions, these details are laid out in Starker v. United States (602 F.2d 1341 (9th Cir. 1979)). And really. Who isn’t?
The Starkers and non-recognition treatment
Crown, moving at the speed of real estate light, conveyed three parcels within four months. Everything’s looking good, eh. But then tax time cometh!
The Starkers, relying on non-recognition treatment pursuant to section 1031 of the massive and onerous U.S. tax code, paid no tax on these transactions, despite actual capital gains.
The IRS was like … Nope. Sorry T.J. You can’t do that. It’s not simultaneous. There’s cash mentioned in the contract. We’d like our money please.
Into the courtroom we go
The Starkers disagreed with the IRS’ disagreement, lawyers got involved, and everyone somehow ended up in a federal courtroom.
The 9th Circuit heard the case, pontificated, used big words like metaphysical, talked about Starker 1 and Starker 2, and in 1979 kind of agreed with the Starkers.
And this, folks, is part of how non-simultaneous 1031 exchanges came into being.
Starker exchanges are 1031 exchanges
If you haven’t guessed it yet, a Starker exchange is a 1031 exchange. Or put simply, it is a non-simultaneous tax-deferred exchange of property named after the Starkers.
The Starkers fought the law, and we all won.