Starker v. United States
602 F.2d 1341 (1979)

  • Starker sold some land to a company called Crown. In exchange, Crown agreed to give similar property to Starker within five years.
    • Crown assessed Starker's property to be worth about $1.50M, and agreed to buy Starker $1.50M worth or property (plus 6% interest).
  • Over the next two years, Crown transferred 12 smaller pieces of property to Starker worth about $1.58M (which included the 6% interest).
  • When Starker filed his taxes, he did not report any capital gains from the sale of his property to Crown. The IRS disagreed.
    • Starker argued that he had made a like-kind exchange of property, and therefore any gain he made was not recognized by 26 U.S.C. 1031.
      • 1031 says that when two persons exchange properties, any capital gains or losses from the exchange will not be recognized.
    • The IRS argued that 1031 only applies when there is a direct exchange of property. In this case, Starker didn't get property (at least not right away), what he got was contract with Crown to acquire property later.
      • Therefore the $1.5M Starker got from Crown should be taxed as a capital gain, and the 6% interest was taxable as ordinary income.
  • The Trial Court found for the IRS. Starker appealed.
  • The Appellate Court reversed in part.
    • The Appellate Court found that 1031 was applicable and that simultaneous transfers were not required.
    • The Court found that contractual rights to assume the right of ownership should not be treated any differently that the ownership rights themselves.
  • After this case, Congress limited the use of non-simultaneous exchanges like this one.
    • Now, under $1031(a)(3), the receiver only has 180 days to take possession of the new property, and only 45 days to identify the new property.
    • Now, a non-simultaneous exchange is sometimes known as a Starker exchange.