Contract analysis

I. Purpose and Scope of Memorandum This memorandum summarizes the procedural framework governing IRS Appeals conferences under Revenue Procedure 2015-41, 2015-35 I.R.B. 263 ("Rev. Proc. 2015-41"), as applicable to Penterra Pharmaceuticals Corp.'s ("PPC" or the "Company") pending transfer pricing examination for tax years 2017, 2018, 2019, and 2020 (collectively, the "Tax Years at Issue"). The memorandum is prepared a

II. Overview of Rev. Proc. 2015-41 A. Background and Purpose Revenue Procedure 2015-41 was issued by the IRS on August 17, 2015, and became effective on September 2, 2015. It replaced and consolidated several prior guidance documents governing the administrative appeals process, including portions of Rev. Proc. 87-24, Rev. Proc. 2000-43, and Rev. Proc. 2006-44, among others. The consolidation effort was part of the I

III. Right to Appeal and Procedural Prerequisites A. Issuance of the 30-Day Letter Upon completion of the examination, if the taxpayer does not agree with the proposed adjustments set forth in the NOPA, the IRS examination team issues a Preliminary Notice of Deficiency, commonly referred to as the "30-Day Letter." The 30-Day Letter serves as the formal mechanism by which the IRS communicates the results of the examin

1. Accept the proposed adjustments. The taxpayer may agree to the IRS's proposed adjustments by executing an agreement form (typically IRS Form 870 or Form 870-AD). This option is not recommended for PPC given the magnitude of the proposed adjustment—$380.4 million in aggregate income reallocations plus a $15.98 million penalty—and the significant factual and legal bases supporting PPC's original transfer pricing pos

2. File a formal written Protest and request an Appeals conference. The taxpayer may submit a formal written Protest to the IRS examination team, setting forth in detail the factual and legal bases for disagreement with each proposed adjustment, and requesting that the case be referred to the Independent Office of Appeals for an impartial review. This is the recommended course of action for PPC. The Appeals process h

3. Take no action. If the taxpayer does not respond to the 30-Day Letter within the allotted time (including any extensions), the IRS will issue a Statutory Notice of Deficiency, also known as the "90-Day Letter." The Statutory Notice of Deficiency is a jurisdictional prerequisite to a petition in the United States Tax Court under IRC § 6213(a). The taxpayer then has 90 days (150 days if the notice is addressed to a

4. Pay the asserted deficiency and file a claim for refund. The taxpayer may pay the full amount of the asserted deficiency (including interest and penalties) and then file a claim for refund on IRS Form 1120-X (or comparable form). If the claim is denied or not acted upon within six months, the taxpayer may pursue refund litigation in the United States District Court or the United States Court of Federal Claims. Thi

IV. Requirements for the Formal Written Protest A. Mandatory Content Elements Under Rev. Proc. 2015-41 and IRS Publication 5, the formal written Protest must contain a number of specified elements. The failure to include any required element may result in the examination team returning the Protest as incomplete or, in some circumstances, the forfeiture of the taxpayer's right to an Appeals conference. Accordingly, C&

1. Taxpayer Identification. The Protest must include the taxpayer's full legal name, current address, Employer Identification Number ("EIN"), and the tax years or periods at issue. For PPC, this information is as follows: Penterra Pharmaceuticals Corp. 2200 Independence Boulevard Princeton Junction, NJ 08550 EIN: 22-3741856 Tax Years: 2017, 2018, 2019, 2020

2. Statement of Intent to Appeal. The Protest must include a clear, unambiguous statement that the taxpayer wishes to appeal the IRS's findings to the Independent Office of Appeals. The statement should be placed prominently at the beginning of the Protest and should explicitly reference the 30-Day Letter by date.

3. Copy of or Reference to the 30-Day Letter and NOPA. The Protest should attach, or clearly reference by date and document number, the 30-Day Letter (dated November 8, 2023) and the NOPA (dated October 12, 2023) showing the proposed adjustments. C&H should attach complete copies of both documents as exhibits to the Protest.

4. Tax Years Involved. The Protest must specifically identify each tax year at issue: TY 2017, TY 2018, TY 2019, and TY 2020.

5. List of Proposed Adjustments With Which the Taxpayer Disagrees. The Protest must include a schedule or listing of each proposed adjustment that the taxpayer contests, organized by issue and tax year. For PPC, the contested adjustments include: • CSA cost-sharing ratio adjustments: $235.01 million (aggregated across all four Tax Years at Issue) • Legacy IP royalty rate adjustments: $188.04 million (aggregated acros

6. Statement of Facts. The Protest must contain a detailed factual statement supporting the taxpayer's position on each disputed issue. This statement is critical because it establishes the evidentiary foundation upon which PPC's legal and economic arguments rest. The factual statement should cover, at a minimum: PPC's corporate structure and the relationship between PPC and PBI; the history and business rationale fo

7. Statement of Law. The Protest must include a discussion of the applicable legal authorities supporting the taxpayer's position on each disputed issue. For PPC, the principal legal authorities include: • IRC § 482 and the arm's-length standard • Treas. Reg. § 1.482-1(d) (arm's-length range and comparability factors) • Treas. Reg. § 1.482-4 (methods for determining taxable income in connection with transfers of inta

8. Statement of Arguments. The Protest must contain the taxpayer's reasoned arguments connecting the factual record to the applicable legal authorities and demonstrating why the proposed adjustments are incorrect. The arguments should be organized by issue—CSA cost-sharing ratios, legacy IP royalty rate, PCT valuation, and penalty—and should address both the substantive merits and the IRS's burden of proof under IRC

9. Penalties of Perjury Statement. The Protest must include a signed declaration, under penalties of perjury, that the facts presented in the Protest are true, correct, and complete. This declaration must be signed by the taxpayer—in PPC's case, by an authorized corporate officer—or by an authorized representative acting pursuant to a valid Power of Attorney. C&H recommends that the penalties-of-perjury statement be

V. Transfer to Appeals and Case Assignment A. Case Referral Process After the examination team receives and accepts PPC's formal Protest, it is responsible for preparing a complete case file for transfer to the Independent Office of Appeals. The case file preparation process is governed by IRM 8.1.1 and related provisions, and typically involves the following steps: First, the examination team assembles the administr

VI. The Appeals Conference A. Scheduling the Conference After the case is assigned to Appeals Officer Castañeda, she will contact C&H to schedule the Appeals conference. In practice, there can be a delay of several weeks between case assignment and the initial scheduling contact, particularly given the complexity and volume of PPC's case file. To minimize delay, C&H should proactively submit a written request to Appe

VII. Possible Outcomes of the Appeals Process A. Full Agreement / Settlement If the Appeals Officer and PPC (through C&H) reach agreement on all disputed issues, the resolution is memorialized in a formal closing agreement. The standard instrument for this purpose is IRS Form 906, Closing Agreement on Final Determination Covering Specific Matters, which is authorized under IRC § 7121. Form 906 is the appropriate vehi

VIII. Timing Considerations and Statute of Limitations A. Statute of Limitations Management Careful management of the statute of limitations on assessment is critical throughout the Appeals process. Under IRC § 6501(a), the IRS generally has three years from the date a return is filed to assess additional tax. If the taxpayer filed the return before the due date (including extensions), the three-year period begins on