WILLIAM GRIESBACH, District Judge
This case is now before me on plaintiff Kohler Company's Petition for Certification of Issue for Interlocutory Appeal pursuant to 28 U.S.C. § 1292(b). Kohler asks that I certify an interlocutory appeal to the Seventh Circuit Court of Appeals from my Decision and Order of February 20, 2003, in which I denied Kohler's motion for summary judgment. For the reasons stated below, I conclude that the petition should be granted.
In this case, Kohler seeks a refund for tax it paid under protest, which was assessed on a transaction it entered into under the Mexican debt equity swap program. Kohler purchased an interest in U.S. dollar denominated debt obligations of the Mexican government from an unrelated seller, a U.S. bank. Kohler then exchanged its interest in the debt obligations for equity in a newly formed Mexican subsidiary, which was funded, upon cancellation of the debt, by a deposit by the Mexican government of Mexican pesos in a restricted account for the benefit of the subsidiary. The dollar value of the pesos deposited in the account (about $19 million) exceeded the dollar amount that Kohler had paid for its interest in the debt obligations (about $11 million). The Internal Revenue Service conducted an audit of the transaction and concluded that Kohler had realized a short-term capital gain of the difference between what Kohler had paid for the Mexican debt obligation and the dollar value of the pesos made available to Kohler's subsidiary. It is the tax assessed on this amount that Kohler seeks to have refunded.
On February 20, 2003, I denied Kohler's motion for summary judgment. It is that decision which Kohler requests I certify for immediate appeal.
As the Seventh Circuit has recently emphasized, there are four statutory criteria for the grant of a § 1292(b) petition: There must be a question of law, it must be controlling, it must be contestable, and its resolution must promise to speed up the litigation. Ahrenholz v. Bd. of Trs. of Univ. of Ill., 219 F.3d 674, 675 (7th Cir. 2000).
There is also a requirement that the petition be filed in the district court within a reasonable time after the order sought to be appealed. In this case, the petition was filed on April 25, 2003, more than two months after the order for which certification is sought. While in most cases, this delay may seem unreasonable, I note that at the status conference held shortly after issuance of my decision, Kohler indicated it was considering such a petition and that the petition was ultimately filed within the time allowed by this court. For this reason, and given the complexity of the case, I conclude that the delay was not unreasonable.
I conclude that all of the statutory criteria are met in this case. In denying Kohler's motion for summary judgment, I rejected its claim that the presumed equivalence rule of United States v. Davis, 370 U.S. 65 (1962), applied. Generally, the Davis rule is that when property with readily ascertainable value is exchanged in an arms-length transaction for property without a readily ascertainable value, the value of the latter property is presumed equal to that of the former. 370 U.S. at 68. Kohler argued that under Davis, the value of the restricted peso account that was set up for the benefit of its subsidiary was equal to the amount it had paid for the interest in the Mexican debt obligations. Thus, it claimed, it realized no gain as a result of the transaction. I rejected the application of Davis, to put it generally, because the value of the pesos account may be readily ascertainable and because what Kohler traded to Mexico (debt payable in Mexican pesos) could be valued higher than what Kohler had purchased (debt payable in U.S. dollars).
Kohler also argued on the basis of the Fifth Circuit's decision in G.M. Trading Corp. v. Commissioner, 121 F.3d 977 (5th Cir. 1997), that even if the exchanges were not equal, any excess value it received should be deemed a contribution to capitol and therefore non-taxable. Finally, Kohler argued that if gain was realized, it would not be recognized under Treas. Reg. § 1.367(a)-1T(b)(3)(i). In support of this argument Kohler relied on United States Tax Court's decision in CMI International, Inc., v. Commissioner, 113 T.C. 1 (1999). I rejected these arguments as well.
I am satisfied that each of the issues I addressed in the summary judgment decision raises a question of law that would be controlling. Although the United States disputes whether the first issue is one of law, I believe that the applicability of the Davis rule to Kohler's debt equity swap is indeed a question of law. And a decision in Kohler's favor on any one of the three issues would have ended the case in Kohler's favor. Moreover, I am satisfied that Kohler's position is a contestable one. The parties' briefs regarding certification themselves show the contestability of the first issue — the parties spend numerous pages rearguing the application of the Davis rule. In my February 20 decision I found that the case law proffered by Kohler did not apply as Kohler argued, but the question nevertheless is one on which there is substantial ground for difference of opinion. Finally, resolution of these three questions would speed up the litigation. If Kohler wins on appeal the case will likely be over. If the United States wins on appeal, the Seventh Circuit may provide guidance on matters that will impact the trial in this case, eliminating some of the risk of a future appeal following trial. I therefore conclude that the petition should be granted.
Accordingly, IT IS THEREFORE ORDERED that Kohler's petition for certification of the issues raised in this matter for interlocutory appeal pursuant to 28 U.S.C. § 1292(b) is hereby GRANTED.
IT IS ORDERED that the following issues are certified for appeal:
1. Whether as a matter of law and under the presumption of equal exchanges recognized in Davis Kohler realized no gain as a result of its debt equity swap transaction;
2. Whether any excess value received by Kohler constitutes a nontaxable contribution to capital; and
3. Whether Kohler's recognized gain from the transaction is zero under Treas. Reg. § 1.367(a)-1T(b)(3)(i).
IT IS FURTHER ORDERED that all proceedings in the district court shall be stayed pending resolution of such appeal.