Oregon Family Wins 1979 Tax Case That Shaped Delayed 1031 Exchanges

The Ninth Circuit ruled the Starkers could defer tax on a 1,843-acre sale even though Crown Zellerbach had five years to deliver replacement property.

By the Family Office Real Estate Daily Desk·Monday, October 12, 2026·2 min read

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The answer · checked against economictimes.indiatimes.com

What did the 1979 Starker v. United States ruling establish about delayed 1031 exchanges?

The Ninth Circuit's 1979 ruling in T.J. Starker v. United States held that a time gap between transferring property and receiving replacement property did not, by itself, disqualify a transaction from Section 1031 tax nonrecognition. The case originated in 1967 when the Starker family exchanged 1,843 acres of Oregon timberland with Crown Zellerbach Corporation, which had up to five years to deliver replacement properties. The IRS had assessed deficiencies of $300,939.31 against T.J. Starker and $35,248.41 against Bruce and Elizabeth Starker.

Key facts

In 1967, T.J. Starker, Bruce Starker, and Elizabeth Starker entered into a land exchange agreement with Crown Zellerbach Corporation covering 1,843 acres of timberland in Columbia County, Oregon.
Crown Zellerbach recorded an exchange value credit of $1,502,500 for T.J. Starker and $73,000 for Bruce and Elizabeth Starker, with up to five years to acquire and transfer replacement real estate selected by the Starkers.
The IRS assessed a tax deficiency of $300,939.31 plus interest against T.J. Starker, and $35,248.41 against Bruce and Elizabeth Starker, after the Starkers reported no gain on their 1967 tax returns.
The Ninth Circuit rejected the government's argument that replacement property had to be transferred at the same time as the original property, ruling that the delay alone did not prevent Section 1031 treatment.
The Ninth Circuit ruled against T.J. Starker on the Timian and Bi-Mart properties because Crown transferred them directly to his daughters rather than to him.
The court ruled that Crown Zellerbach's 6% annual growth factor represented interest rather than exchange value, but found it was not taxable to T.J. Starker in 1967 because he used the cash method of accounting and had not yet received it.

Oregon Family Wins 1979 Tax Case That Shaped Delayed 1031 Exchanges — Image: editorial illustration · Story sourced from economictimes.indiatimes.com

A federal appeals court ruled in 1979 that an Oregon family did not owe immediate tax on a land sale completed more than a decade earlier. The case, T.J. Starker v. United States, involved T.J. Starker, his son Bruce Starker and his daughter-in-law Elizabeth Starker, who in 1967 entered into a land exchange agreement with Crown Zellerbach Corporation. The agreement covered 1,843 acres of timberland in Columbia County, Oregon.

Crown Zellerbach did not hand over replacement property right away. Instead, the company agreed to acquire and transfer other real estate in Oregon and Washington within five years, or pay the outstanding balance in cash. Crown recorded an exchange value credit of $1,502,500 for T.J. Starker and $73,000 for Bruce and Elizabeth. The company agreed to add a 6 percent annual growth factor to the outstanding balance.

The Starkers reported no gain from the transaction on their 1967 tax returns. The Internal Revenue Service challenged that treatment and assessed a deficiency of $35,248.41 against Bruce and Elizabeth and $300,939.31, plus interest, against T.J. Starker. Bruce and Elizabeth won their refund case, and the government voluntarily dismissed its appeal. The dispute involving T.J. Starker continued.

The Ninth Circuit rejected the government's argument that the replacement property had to be transferred at the same time as the original property. The court held that the delay itself did not prevent the transactions from receiving Section 1031 treatment. T.J. Starker did not receive all his replacement properties immediately.

The court ruled against Starker on the Timian and Bi-Mart properties because Crown transferred them directly to his daughters. The court also ruled that the 6 percent growth factor represented compensation for the use of money and therefore was interest. But because Starker used the cash method of accounting, the interest was not taxable to him in 1967 before he received it.

The Ninth Circuit affirmed the district court in part and reversed it in part. The ruling became known because it held a long gap between transferring property and receiving replacement property did not, by itself, prevent Section 1031 treatment.

The Deployment Angle

Family Office Real Estate Daily Desk · our analysis, not the source's

The Starker precedent allows family offices to structure delayed exchanges in which the sponsor takes title to the relinquished asset today and sources replacement property over a multi-year horizon. That arrangement suits principals who want to exit a concentrated position without forcing immediate reinvestment into whatever happens to be trading at the time. The exchange credit sits on the intermediary's books, accruing a fixed return, while the family office searches for the right replacement deal.

The arithmetic matters. In the Starker case, the exchange credit was $1,502,500 with a 6 percent annual growth factor. Over five years that compounds to roughly $2,010,000, meaning the family could eventually acquire $2 million of replacement property having sold $1.5 million of timberland. A family office structuring a similar exchange today should model the carry cost of the intermediary's capital against the expected appreciation of the relinquished asset and the opportunity cost of waiting to redeploy. If the growth factor is 6 percent but the sponsor's cost of capital is 8 percent, the economics tilt toward a shorter exchange period or a direct simultaneous swap.

Two constraints remain. First, properties transferred directly to heirs do not qualify, so the family office must take title before any gift or estate planning transfer. Second, any interest component of the deferred payment is taxable when received, even if the principal exchange defers recognition. Family offices using a programmatic separate account to roll multiple properties over time should structure each leg as a distinct exchange rather than a running credit facility, because a credit facility will throw off current interest income that cannot be deferred.

Questions this story answers

01What did the Ninth Circuit decide in T.J. Starker v. United States?

The Ninth Circuit held that a long gap between transferring property and receiving replacement property did not, by itself, prevent Section 1031 tax nonrecognition treatment. The court affirmed the district court in part and reversed it in part, ruling against T.J. Starker on the Timian and Bi-Mart properties and on the characterization of the 6% growth factor as interest.

02How much tax did the IRS try to collect from the Starkers?

The IRS assessed a deficiency of $300,939.31 plus interest against T.J. Starker and a deficiency of $35,248.41 against Bruce and Elizabeth Starker. Bruce and Elizabeth won their refund case, and the government voluntarily dismissed its appeal against them. The dispute involving T.J. Starker continued to the Ninth Circuit.

03What was the structure of the Starker land deal with Crown Zellerbach?

In 1967, the Starkers transferred their interests in 1,843 acres of timberland in Columbia County, Oregon to Crown Zellerbach Corporation. Crown credited $1,502,500 for T.J. Starker and $73,000 for Bruce and Elizabeth Starker, and had up to five years to acquire and transfer replacement real estate in Oregon and Washington selected by the Starkers, with a 6% annual growth factor added to the outstanding balance.

04Why did the Ninth Circuit rule against Starker on some of the replacement properties?

The Ninth Circuit ruled against T.J. Starker on the Timian and Bi-Mart properties because Crown Zellerbach transferred those properties directly to his daughters rather than to him.

05How did the Starker ruling change how delayed 1031 exchanges are treated?

The Ninth Circuit's 1979 ruling in T.J. Starker v. United States became known for establishing that a delay between the transfer of original property and the receipt of replacement property did not, by itself, disqualify a transaction from Section 1031 tax nonrecognition treatment, countering the IRS argument that both transfers had to occur simultaneously.

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