Tax deferred exchanging has been around since 1921. However at that time, all exchanges were Simultaneous exchanges. Menaing of course that all the proeprties involved in the exchange needed to close on the same day. Not an easy task!
However in the late seventies, an Oregon property owner by the name of T.J. Starker changed the entire trajectory of tax defrred exchanging when he he sold some timberland to Crown Zellerbach. However, instead of receiving cash in the sale, the Starker took a credit on the books of the company. Then, over the course of about five years, as the Starker family found replacement property they wanted, Crown Zellerbach would buy it and and have it deeded to them and applied against their credit on the company books.
Well, you can imagine that the Internal Revenue Service was unimpressed with this entire approach so they disallowed it and everything ended up in tax court. But interestingly enough, what actually arose from all the proceedingings was that the delayed exchange concept was upheld. Granted, not every single of the Starker transfers were found to be compliant. But enough were, so that for the period between the Starker case law rulings and 1984, delayed exchanges could actually be completed legitimately in the circuit which heard the original case.
Well obviously, if you no longer had to close everything simultaneously, you’d do a delayed or deferred exchange yourself. So naturally, exchange volume increased. In fact it increased to such an extent, that the Internal Revenue Service went ahead and codified delayed exchanging in 1984 simply in an effort to get some control around the whole process. For instance that’s where our 180 day time frame and identification rules came from.
Since then we’ve gotten rules for reverse exchanges which make them easier to easier to complete as well as several Revenue Procedures and other forms of Guidance that deal with many other forms of exchanging. Everything from the programmed exchanging of fleets of cars and trucks to the partial exchange of assets which are influenced by various other sections of the Code.
But that’s a little context……a little history of tax deferred exchanging.