Contract analysis

I. Executive Summary This memorandum analyzes the potential state income tax consequences arising from the federal settlement adjustment of $47.6 million across tax years 2017 through 2020, allocated as follows: $11.2 million (TY 2017), $12.4 million (TY 2018), $12.8 million (TY 2019), and $11.2 million (TY 2020). The federal settlement was executed via IRS Form 906 Closing Agreement on March 29, 2024, resolving the

II. Background on the Federal Settlement A. The IRS Examination The IRS Large Business & International Division ("LB&I") opened an examination of PPC under Team ID LB&I-NE-TP-2022-00641 on May 16, 2022. The examination covered PPC's federal income tax returns (Forms 1120) for tax years 2017, 2018, 2019, and 2020 (PPC's fiscal year-end is December 31 for each year at issue). The examination was focused on PPC's transf

1. The $47.6 million increases PPC's federal taxable income for each of the four tax years at issue, as reflected on line 30 of Form 1120.

2. Because virtually all states that impose a corporate income tax use federal taxable income (or federal adjusted gross income, depending on the state's conformity framework) as the starting point for computing state taxable income, the adjustment flows directly into PPC's state income tax base.

3. The adjustment does not represent a change in the character of income. It is an increase in ordinary business income allocated to PPC under § 482. It is not capital gain, exempt income, or income subject to special state treatment.

4. The adjustment does not create new nexus in any state. PPC already files income tax returns in the affected states based on its existing operational footprint. Rather, the adjustment increases the quantum of income subject to existing apportionment formulas in each filing state.

5. Because the adjustment relates to intercompany transactions with a foreign entity (PBI), it raises specific apportionment questions—particularly with respect to the sourcing of the additional royalty and cost-sharing income for purposes of each state's sales or receipts factor. These questions are addressed in detail in Section V below.

III. PPC's State Filing Profile A. States Where PPC Files Corporate Income/Franchise Tax Returns Based on our review of PPC's state income tax filings for tax years 2017 through 2020, as provided to us by PPC's internal tax department, PPC files corporate income tax, franchise tax, or comparable returns in the following states and jurisdictions. The states identified below as "key filing states" are those in which PP

IV. State-by-State Analysis of Key Filing States A. New Jersey Conformity. New Jersey computes the Corporation Business Tax ("CBT") starting with "entire net income," which is defined by reference to federal taxable income (IRC § 63). New Jersey maintains rolling conformity with the Internal Revenue Code, subject to certain state-specific additions and subtractions. The $47.6 million federal settlement adjustment flo

V. Apportionment Considerations A. Impact of the § 482 Adjustment on Apportionment Factors The $47.6 million adjustment raises important questions regarding how the additional income is treated for purposes of each state's apportionment formula. Specifically, the adjustment increases PPC's federal taxable income and thus increases the total income subject to apportionment. However, the adjustment also potentially aff

VI. State Statute of Limitations Considerations A. General Rules Most states impose a three-year statute of limitations for the assessment of additional income tax, running from the later of the filing date or the due date of the return (including extensions). For the tax years at issue, the general statute of limitations analysis is as follows: TY 2017. PPC's original return due date (with automatic extensions) was

VII. State Penalty Exposure Most states impose penalties for various types of noncompliance, including substantial understatement of tax, underpayment of estimated taxes, and failure to timely report federal changes. The following summarizes the key penalty risks for PPC: New Jersey. New Jersey imposes a late-payment penalty of 5% per month (up to a maximum of 25% of the unpaid tax) for failure to pay tax when due. N

VIII. State Interest Calculations All states impose interest on underpayments of tax, computed from the original due date of the return through the date of payment. Unlike penalties, interest is generally not subject to abatement—it is a charge for the use of money owed and accrues regardless of the taxpayer's good faith. State interest rates vary by state and by year, generally ranging from approximately 3% to 10% p

IX. Interaction with TCJA and State Conformity The Tax Cuts and Jobs Act of 2017 ("TCJA") enacted sweeping changes to the Internal Revenue Code, effective for tax years beginning after December 31, 2017. Several aspects of the TCJA interact with the analysis of state tax consequences arising from the § 482 adjustment. TY 2017 Federal Rate. For TY 2017, the federal corporate income tax rate was 35% (pre-TCJA). Because

X. Impact on State Deferred Tax Assets / Liabilities (ASC 740) The $47.6 million federal settlement adjustment and the corresponding state tax consequences have implications for PPC's financial reporting under Accounting Standards Codification ("ASC") 740 (formerly Statement of Financial Accounting Standards No. 109 and FASB Interpretation No. 48 ("FIN 48")). Federal FIN 48 Reserve. PPC's FIN 48 uncertain tax positio

XI. Competent Authority / Double Taxation Considerations at State Level We cross-reference the competent authority analysis prepared by Leonard Cross in December 2023, which addressed the potential filing of a request for competent authority assistance under the mutual agreement procedure ("MAP") prov