Tax Deferred exchanging in some form has been with us since the 1920s. Watch to see what changed with Tax Deferred Exchanges the 1970s to where we are today with 1031 Exchanges.
History of Exchanging
Tax Deferred Exchanging in some form has been with us since the 1920s.
However, the difficulty associated with completing an exchange up until the late 70s was related to those issues which arose around having to complete every transaction simultaneously.
That’s right up until the case law arising from the Starker decisions.
Every exchange had to be done where all the transfers were completed on the same day.
Not an easy task at all.
But what happened with the Starker situation was this.
The Starker family sold some land to Crown Zellerbach company.
And instead of receiving cash in the sale they took a credit on the books of the company.
Then over the course of a few years as the Starker family found a Replacement Property they wanted.
Crown Zellerbach would buy it and have a deeded to the Starkers and applied against this credit.
Well, you can imagine that the Internal Revenue Service was unimpressed with this entire approach.
So, they questioned it, and everything ended up in Tax Court but what arose from the proceedings was that the delayed exchange concept was upheld.
Granted not all of the Starker transfers were found to be compliant but enough were
so that for the period between the Starkers case law rulings in 1984 Delayed Exchanges could actually be completed legitimately in the circuit which heard the case.
Well obviously, if you no longer had to close everything simultaneously, you’d do a delayed exchange as well.
So naturally exchange volume increased.
In fact, it increased to such an extent that the Internal Revenue Service codified delayed exchanging in 1984.
Simply in an effort to get some control around the process.
For instance, that’s where the 180-day time frame and identification rules came from
Since then, we’ve gotten rules for Reverse Exchanges which make them easier to complete.
As well as several Revenue procedures and other forms of guidance that deal with many other forms of exchanging.
Everything from programmed exchanging to fleets of cars and trucks to the partial exchange of assets which are governed by different sections of the code but that’s a little context a little history of Tax Deferred Exchanging.