Deferred Sales Trusts as a 1031 Alternative: How IRC 453 Installment Sale Structures Really Work

According to Kitces.com, no IRS revenue ruling or regulation has ever validated the trust-intermediary structure that promoters market as a "Deferred Sales Trust," even though the marketing around it often implies IRS blessing on par with a standard 1031 exchange. I want you to sit with that for a second before you sign anything. You're about to read about a strategy that gets pitched hard to business owners and real estate investors who missed their 1031 window, or who own an asset (a business, a stock concentration, even crypto) that a 1031 exchange can't touch in the first place. The pitch is real. The tax code section behind it is real. But the specific product built on top of that code section has never been tested in court and has never received the IRS's blessing. That gap matters, and I'm going to walk you through exactly where it sits.

What a Deferred Sales Trust Actually Is

Start with the plumbing, because the marketing obscures it. An installment sale, under IRC Section 453, is a transaction where you sell property and receive payment over more than one tax year instead of all at closing. If I sell you my rental property for $2 million and you pay me $200,000 a year for ten years, I only recognize the gain proportionally as I receive each payment, instead of owing capital gains tax on the whole $2 million the year I sign the deed. Congress wrote Section 453 to help ordinary sellers, think a retiring shop owner carrying a note for the buyer, smooth out their tax hit. That part of the code is old, well understood, and completely legitimate.

The "Deferred Sales Trust" product, trademarked and popularized by a firm called Estate Planning Team (EPT) and marketed through a network of licensed trustees such as Reef Point LLC, headed by Greg Reese, takes that installment sale mechanic and adds a third party. Instead of selling directly to your buyer and carrying the note yourself, you sell your asset to an independent trust. The trust then sells the asset to the actual buyer, invests the cash proceeds, and pays you back over years through an installment note it issues to you. The theory: you've sold the asset (so the buyer gets clean title today) but you haven't "received" the money in the tax sense, so your gain recognition follows the note schedule, not the closing date. According to a comparison of Deferred Sales Trusts and 1031 exchanges from Phoenix Strategy Group, this flexibility is exactly why promoters position the DST as a "1031 alternative" for sellers who don't want, or can't use, a like-kind real estate exchange.

It sounds like a 1031 exchange with more flexibility, and promoters lean into that comparison hard. It is not the same animal, and the acronym overlap is a genuine trap.

DST Does Not Mean DST: Clear This Up First

This is the single most important disambiguation in this entire article, because I've watched investors get confused in real meetings over it. "DST" in the 1031 exchange world almost always means Delaware Statutory Trust, a passive, fractional real estate ownership vehicle that qualifies as replacement property under a 1031 exchange and is regulated as a security, typically sold via a private placement memorandum under Reg D. "DST" in this article means Deferred Sales Trust, an installment-sale-based tax deferral product that has nothing to do with Delaware, nothing to do with fractional real estate ownership, and works on assets a 1031 exchange can't touch at all, including operating businesses and marketable securities. If your advisor says "DST" and you're not sure which one, stop and ask them to spell it out. The tax treatment, the regulatory oversight, and the risk profile are completely different products that happen to share three letters.

Why Sellers Reach for This Instead of a 1031

The appeal is straightforward once you see the constraints of a traditional 1031 exchange. A 1031 exchange only works for real property held for investment or business use, requires you to identify a replacement property within 45 days of closing and close on it within 180 days, and requires you to use a qualified intermediary to hold the funds so you never take constructive receipt. Miss the window, and the whole exchange collapses. You owe the tax as if you'd never tried. A Deferred Sales Trust has none of those constraints. You can use it to sell a business, a concentrated stock position, artwork, or a piece of real estate you decided not to exchange. There's no 45-day identification deadline and no requirement to reinvest in a "like-kind" replacement asset. The trust simply invests the proceeds in a diversified portfolio (bonds, funds, sometimes other real estate) and pays you out per the note terms, often 10 to 20 years. For someone with a highly appreciated business they're ready to exit, or a founder sitting on concentrated stock they can't or won't 1031-exchange because it isn't real estate, that flexibility is genuinely attractive on paper.

Where the Legal Ground Gets Thin

Here's where I put my analyst hat on and slow down, because this is the part the glossy webinar decks skip. According to LegalClarity's review of the IRS position on Deferred Sales Trusts, the IRS has never issued a private letter ruling, revenue ruling, or regulation specifically approving the trust-intermediary version of an installment sale. Promoters lean on two old, narrow cases, Rushing v. Commissioner (5th Cir. 1971) and Sproull v. Commissioner, 16 T.C. 244 (1951), as their legal foundation. Neither case involved anything resembling the modern DST product. Both are being stretched to support a structure decided decades after the fact. That's not automatically fatal to the strategy, but it means every single Deferred Sales Trust closed to date rests on an extrapolation nobody at the IRS has confirmed, rather than a settled rule you can point to the way you can point to the 1031 exchange statute itself. It also means the trademark "Deferred Sales Trust" itself has had a rocky path. Per Kitces.com, the USPTO mark has been listed as abandoned since 2021, which doesn't affect the tax mechanics but tells you something about how the brand has been managed. A separate LegalClarity review of common Deferred Sales Trust problems flags the same core issue from a different angle: the structure asks you to rely on an interpretation of the tax code that no court has squarely tested in the DST's current form.

Jeff's Risk Section: What I'd Push Back On Before Signing

I don't think every Deferred Sales Trust is a scam, and I don't think everyone selling them is acting in bad faith. But if a client brought me a DST proposal, here's what I'd flag, in order of how much it worries me.

No safe harbor, no revenue ruling. I already covered this, but it's worth restating in plain terms: if the IRS decides to challenge the structure on audit, you are litigating a novel legal theory with your own money and years of your life, not citing settled law. Compare that to a properly executed 1031 exchange, which rests on a statute Congress wrote specifically for this purpose and decades of regulatory guidance.

Promoter fee drag compounds for years. According to the Estate Planning Team's own published fee structure, setup and legal fees typically run 1.25% to 1.5% of the transaction value up front, and ongoing trustee, administrative, and investment advisory fees combined run around 1.5% a year after that. On a $5 million sale, that's $62,500 to $75,000 out the door before a dollar is invested, then roughly $75,000 a year running for the life of the note. Over a 15-year note, that ongoing fee alone can exceed a million dollars in drag, money that comes straight out of the return you were trying to protect by deferring tax in the first place. Run the math against just paying the capital gains tax up front and investing what's left. For some sellers, the fee load erases most of the deferral benefit.

Rising IRS and DOJ enforcement. The IRS added monetized installment sales, a closely related structure where the seller also borrows against the note immediately, to its "Dirty Dozen" list of abusive tax scams in 2021, and per LegalClarity's review, proposed 2023 regulations under Section 1.6011-13 would classify certain monetized installment sale arrangements as "listed transactions" requiring disclosure on IRS Form 8886, with penalties up to $100,000 a year for individuals who fail to disclose. In early 2024, the IRS went to the Central District of California to enforce summonses against a firm called Kaylor DST Services LLC, investigating possible promoter penalties under IRC Sections 6700 and 6701. The Department of Justice followed in 2025 with a complaint filed in Idaho targeting roughly 386 monetized installment sale transactions totaling more than $968 million. I'm not saying every Deferred Sales Trust promoter is under the same cloud as a monetized installment sale promoter, since they're related but distinct structures, but the direction of enforcement travel is unmistakable, and regulators are looking hard at this corner of the tax world right now.

Trustee counterparty risk you cannot control. Once you sell your asset to the trust, you no longer own it and you no longer control how the proceeds are invested. You're now an unsecured creditor waiting on note payments from a trust run by a trustee, commonly a firm like Reef Point LLC, that invests your money in a portfolio you don't select and can't override. If the trust's investments underperform, lose money in a bad market, or the trustee mismanages the portfolio, your note payments can shrink or stop. A 2020 Washington State Department of Financial Institutions Securities Division enforcement action, cited by both Kitces and jamesburnslaw.com, alleged that in at least one case a Deferred Sales Trust was implemented for a client without a valid installment note ever actually being issued, meaning the paperwork underpinning the entire deferral claim was incomplete. You have essentially traded 1031 exchange risk (missing a deadline, finding suitable replacement property) for trustee risk (a party you don't control holding your money for a decade or two).

Deferred Sales Trust vs. 1031 Exchange, Side by Side

Feature	1031 Exchange	Deferred Sales Trust
Eligible assets	Real property held for investment/business use only	Any appreciated asset: real estate, business, stock, crypto, art
Legal basis	IRC Section 1031, decades of regulations and case law	IRC Section 453 installment sale rules, extended by promoter interpretation. No IRS ruling on the trust wrapper
Timing rules	45 days to identify, 180 days to close	No statutory deadline. Note terms set by contract
Who holds funds	Qualified intermediary (regulated practice, no ownership of funds)	Independent trust/trustee (e.g., Reef Point LLC) that invests proceeds and issues you a note
Control over reinvestment	You select replacement property	Trustee selects investment portfolio; you have no direct control
Typical costs	QI fee, usually a few thousand dollars flat	1.25%-1.5% setup, roughly 1.5%/year ongoing per mydeferredsalestrust.com
Regulatory scrutiny	Well-established, low audit controversy when done correctly	Rising IRS/DOJ enforcement on related monetized installment sale promoters since 2021

When It Might Still Make Sense

I don't want to leave you with the impression this is never appropriate. If you're selling a business or a concentrated stock position — an asset a 1031 exchange literally cannot touch because it isn't real estate — and you have no interest in ever buying replacement real estate, a properly documented installment sale to an independent party can be a legitimate deferral tool, provided the note is real, the trustee is properly licensed, and you go in understanding you're relying on an extension of settled law rather than settled law itself. I'd want any client considering this to get a second opinion from a tax attorney who doesn't earn a commission from the trustee, run the fee drag against a straight pay-the-tax-now scenario, and ask the promoter directly for the trust's audited financials and the trustee's regulatory history before wiring a dollar.

FAQ

Is a Deferred Sales Trust the same as a Delaware Statutory Trust?
No. They share the acronym DST but are entirely different products. A Delaware Statutory Trust is a passive real estate co-ownership vehicle that qualifies as 1031 exchange replacement property and is regulated as a security. A Deferred Sales Trust is an installment-sale tax deferral structure under IRC Section 453 that has nothing to do with fractional real estate ownership and has no IRS ruling behind it.

Has the IRS ever approved the Deferred Sales Trust structure?
No. According to LegalClarity's review, the IRS has never issued a revenue ruling, private letter ruling, or regulation approving the trust-intermediary version of an installment sale. Promoters rely on older, narrower case law, Rushing v. Commissioner and Sproull v. Commissioner, that predates the modern product by decades.

How much does a Deferred Sales Trust cost?
Per the Estate Planning Team's published fee structure, expect 1.25% to 1.5% of the transaction value in upfront setup and legal fees, plus roughly 1.5% a year in combined trustee, administrative, and investment advisory fees for as long as the note runs.

Is the IRS actively investigating Deferred Sales Trust promoters?
The IRS has focused recent enforcement on the closely related monetized installment sale structure, adding it to the 2021 Dirty Dozen list and proposing disclosure requirements under Section 1.6011-13. The IRS also pursued summonses against a DST promoter, Kaylor DST Services LLC, in early 2024, and the DOJ filed a 2025 complaint over $968 million in related monetized installment sale transactions. The regulatory trend is toward more scrutiny, not less.

Author Disclosure: Jeff Barnes, MBA has no personal position in any company, fund, or platform named in this article. Angel Investors Network has no current commercial relationship with any party mentioned. AIN provides marketing and education services, not investment advice. Past performance does not guarantee future results. All investments involve risk, including loss of principal.