APPEALS CONFERENCE — ATTENDEE LIST
Penterra Pharmaceuticals Corp. — IRS Transfer Pricing Examination Defense
February 26, 2024
This document identifies all individuals expected to attend the IRS Appeals Conference scheduled for February 28, 2024 in the above-referenced matter, as well as individuals who will not attend but who may be available by telephone or who are otherwise relevant to the proceeding. This document is prepared for internal use by the taxpayer's representatives and client personnel only and is not intended for distribution to, or filing with, the Internal Revenue Service.
SECTION 1: TAXPAYER'S REPRESENTATIVES — CALDERWOOD & HARKNESS LLP (OUTSIDE TAX COUNSEL)
The following attorneys of Calderwood & Harkness LLP are authorized representatives of Penterra Pharmaceuticals Corp. ("PPC" or the "Taxpayer") before the IRS Appeals Office in connection with the above-referenced transfer pricing examination. Each attorney listed below has been designated on IRS Form 2848 (Power of Attorney and Declaration of Representative) filed with the Centralized Authorization File ("CAF") Unit on June 8, 2022, and each Form 2848 remains in full force and effect as of the date of this memorandum.
1.1 Leonard Cross
Role at Conference: Mr. Cross is the responsible partner for this engagement and will serve as lead presenter and principal spokesperson for PPC at the Appeals Conference. Mr. Cross will deliver the opening statement on behalf of PPC, setting forth the factual background of PPC's transfer pricing arrangements and the legal and economic bases for PPC's position that no adjustments under IRC § 482 are warranted. Specifically, Mr. Cross will present the legal arguments concerning PPC's qualified cost-sharing arrangement ("CSA") under Treas. Reg. § 1.482-7, including the cost-sharing ratios applied during the tax years at issue and the arm's-length nature of the platform contribution transaction ("PCT") payments. Mr. Cross will also present PPC's defense of the intercompany royalty rate charged to Penterra Biopharma International DAC ("PBI") for the licensing of legacy intangible property, arguing that the royalty rate is consistent with arm's-length results under the comparable uncontrolled transaction ("CUT") method. In addition, Mr. Cross will address the economic substance of PBI's operations in Ireland and the business rationale underlying PPC's global transfer pricing structure. Mr. Cross will handle direct questions from the Appeals Officer, manage the overall flow and timing of the taxpayer's presentation, and coordinate with co-counsel and the taxpayer's economic expert as appropriate during the conference.
1.2 Sylvia Hartwell
Role at Conference: Ms. Hartwell is co-counsel and the billing partner on this engagement. At the Appeals Conference, Ms. Hartwell will address the settlement framework and potential resolution parameters, including the taxpayer's willingness to explore a principled settlement based on appropriate hazards-of-litigation analysis. Ms. Hartwell will also present PPC's penalty protection arguments, specifically addressing PPC's position that no substantial valuation misstatement penalty under IRC § 6662(e) should apply because PPC satisfies the reasonable cause and good faith exception under IRC § 6664(c). In particular, Ms. Hartwell will present PPC's defense under IRC § 6662(e)(3)(B), arguing that PPC's transfer pricing positions were supported by contemporaneous documentation that satisfies the requirements of Treas. Reg. § 1.6662-6(d), including a comprehensive transfer pricing study prepared by Whitmore Valuation Group LLC in accordance with the documentation requirements of IRC § 6662(e)(3)(B)(ii). Ms. Hartwell will address the quality, timing, and scope of PPC's contemporaneous documentation and the reasonableness of PPC's selected method and economic analysis, and will respond to any questions from the Appeals Officer concerning penalty-related issues.
1.3 Garrett Simmons
Role at Conference: Mr. Simmons is the lead associate on this engagement and is serving as supporting counsel at the Appeals Conference. Mr. Simmons will manage all presentation materials, including the Appeals Conference Document Binder, exhibits, and demonstrative aids. During the conference, Mr. Simmons will assist Mr. Cross and Ms. Hartwell with economic analysis discussion points, coordinate the use and referencing of exhibits (Exhibits A through E) and documentary evidence during the taxpayer's presentation, and provide real-time research support as needed. Mr. Simmons will also be responsible for maintaining a contemporaneous log of issues raised by the Appeals Officer and any factual or legal questions that require follow-up after the conference. Mr. Simmons prepared this Attendee List and coordinated the assembly of the Appeals Conference Document Binder.
SECTION 2: TAXPAYER'S REPRESENTATIVES — PENTERRA PHARMACEUTICALS CORP. (CLIENT)
The following individuals are employees and officers of Penterra Pharmaceuticals Corp. who will attend the Appeals Conference in their capacity as authorized client representatives. These individuals are not designated on IRS Form 2848 as powers of attorney but are attending the conference as representatives of the taxpayer and are authorized to speak on behalf of PPC regarding factual and business matters relevant to the issues under consideration.
2.1 Marcus Whitfield
Role at Conference: Mr. Whitfield is the primary client representative attending the Appeals Conference. As Vice President, Global Tax of Penterra Pharmaceuticals Corp., Mr. Whitfield has direct operational responsibility for PPC's global transfer pricing policies, intercompany agreements, and tax compliance functions. Mr. Whitfield is available to address factual questions from the Appeals Officer regarding PPC's transfer pricing methodology, including the rationale for the selected best method, the structure and implementation of the cost-sharing arrangement between PPC and PBI, and the operational substance and day-to-day activities of PBI in Dublin, Ireland. Mr. Whitfield is also prepared to discuss the business and commercial rationale underlying PPC's global operating structure, including the role of PBI in PPC's pharmaceutical research, development, and commercialization activities outside the United States. Mr. Whitfield has been authorized by PPC senior management, including the Chief Executive Officer and the Chief Financial Officer, to discuss settlement parameters on behalf of PPC management within the range previously communicated to outside counsel and approved by PPC's Board of Directors.
2.2 Deborah Staines
Role at Conference: Ms. Staines is attending the Appeals Conference in her capacity as General Counsel of Penterra Pharmaceuticals Corp. Ms. Staines is available to address legal and corporate governance matters relevant to the issues under consideration, including the negotiation and execution of intercompany agreements, the corporate governance structure of PBI, and the legal framework of PPC's cost-sharing arrangement. Ms. Staines is also overseeing all privilege and disclosure matters in connection with the Appeals Conference and the broader IRS examination, including the assertion of attorney-client privilege, work product protection, and any issues concerning the scope of permissible disclosures during the conference. Ms. Staines will consult with outside counsel regarding any privilege issues that arise in real time during the proceeding.
SECTION 3: TAXPAYER'S REPRESENTATIVES — WHITMORE VALUATION LLC (ECONOMIC EXPERT — KOVEL ARRANGEMENT)
The following individual is a non-attorney expert retained by Calderwood & Harkness LLP under a Kovel arrangement to assist outside counsel in rendering legal advice to PPC. As set forth below, this individual is attending the Appeals Conference at the direction of counsel and communications with this individual are subject to the protections of the attorney-client privilege and work product doctrine as established under United States v. Kovel, 296 F.2d 918 (2d Cir. 1961), and its progeny.
3.1 Dr. Helena Vasquez
Role at Conference: Dr. Vasquez is the Managing Director and Lead Economist of Whitmore Valuation Group LLC and has been retained by Calderwood & Harkness LLP under a Kovel arrangement to provide economic consulting services in connection with the defense of PPC's transfer pricing positions. Dr. Vasquez will present the economic analyses supporting PPC's positions at the Appeals Conference. Specifically, Dr. Vasquez's presentation will address the following analytical components:
(a) CUT Analysis — Legacy IP Royalty Rate. Dr. Vasquez will present a comparable uncontrolled transaction ("CUT") analysis supporting PPC's intercompany royalty rate charged to PBI for the licensing of PPC's legacy pharmaceutical intangible property. Dr. Vasquez's analysis is based on 14 comparable pharmaceutical license agreements identified through a systematic search of publicly available databases and private transaction data. The analysis demonstrates an interquartile range ("IQR") of 3.1% to 6.8% of net sales, with a median of 4.4%. PPC's intercompany royalty rate falls within this arm's-length range.
(b) CPM/TNMM Analysis — PBI Operating Margins. Dr. Vasquez will present a comparable profits method ("CPM") / transactional net margin method ("TNMM") analysis benchmarking the operating margins of PBI against 22 comparable companies identified through a rigorous comparability analysis. This analysis demonstrates that PBI's operating margins during the tax years at issue are consistent with arm's-length results.
(c) PCT Income-Method/DCF Valuation. Dr. Vasquez will present an income-method valuation of the platform contributions made by PPC under the cost-sharing arrangement, utilizing a discounted cash flow ("DCF") methodology with a weighted average cost of capital ("WACC") of 9.8%. The analysis yields an arm's-length range of $278 million to $361 million for the PCT payment, demonstrating that PPC's actual PCT payments are within the arm's-length range.
(d) Rebuttal of IRS Economist's Analysis. Dr. Vasquez will address and rebut the economic analysis performed by Dr. Alan Washburne, IRS Economist, including specific criticisms of Dr. Washburne's comparability adjustments, discount rate assumptions, and the reliability of his selected comparables. Dr. Vasquez will demonstrate material methodological deficiencies in the IRS's economic analysis that undermine the reliability of the proposed adjustments.
Privilege Notation: Dr. Vasquez appears at the direction of counsel (Calderwood & Harkness LLP) under the attorney-client privilege framework established by the Kovel engagement letter dated June 20, 2022 (Kovel Letter Reference: 1018-00009-KV). All communications between Dr. Vasquez and Calderwood & Harkness LLP in connection with this engagement are made for the purpose of assisting counsel in rendering legal advice to PPC and are protected by the attorney-client privilege and the work product doctrine. The taxpayer does not waive any privilege protections by Dr. Vasquez's attendance at or participation in the Appeals Conference.
SECTION 4: INTERNAL REVENUE SERVICE — IRS APPEALS
The following individual has been identified as the IRS Appeals Officer assigned to the case. This information is based on correspondence received from the IRS Appeals Office dated January 16, 2024.
4.1 Noreen Castañeda
Role at Conference: Ms. Castañeda is the Appeals Officer assigned to PPC's transfer pricing case. Ms. Castañeda was assigned to this matter in January 2024 following the filing of PPC's Formal Protest on December 22, 2023. Ms. Castañeda will preside over the Appeals Conference, evaluate the hazards of litigation presented by the taxpayer's and IRS's respective positions, and explore potential resolution of the disputed adjustments. As Appeals Officer, Ms. Castañeda is authorized to settle the case based on her independent evaluation of the merits of both parties' positions and the litigation risks attendant to each disputed issue.
It is the taxpayer's understanding, based on correspondence with the Appeals Office, that Ms. Castañeda will be the sole IRS representative present at the conference and that no members of the IRS examination team are expected to attend. The taxpayer reserves all rights regarding ex parte communication protocols as set forth in Section 5.2 below.
SECTION 5: ADDITIONAL NOTES
5.1 Attendees Not Present — Taxpayer's Side
The following individuals are part of the taxpayer's engagement team but will not attend the Appeals Conference in person on February 28, 2024. Each individual is available by telephone if needed during the conference for research, document retrieval, or supplemental analysis support.
Leila Nazari — Working Associate, Tax Department, Calderwood & Harkness LLP (1735 Market Street, Suite 3100, Philadelphia, PA 19103). Ms. Nazari is authorized under the IRS Form 2848 filed June 8, 2022, and has been actively involved in the preparation of the Formal Protest and the Appeals Conference materials. Ms. Nazari will not attend the conference in person but will be available by telephone throughout the duration of the conference for legal research and document retrieval support. Ms. Nazari may be reached at (215) 554-6225 or lnazari@calderwoodharkness.com.
Dr. Rohan Chakrabarti — Senior Director, Whitmore Valuation Group LLC (200 Ashbury Asset Advisors, Suite 700, Boston, MA 02109). Dr. Chakrabarti has worked closely with Dr. Vasquez on the economic analyses supporting PPC's transfer pricing positions and will not attend the conference in person. Dr. Chakrabarti will be available by telephone for supplemental economic analysis questions that may arise during the conference, including questions relating to the CPM/TNMM benchmarking study and the DCF valuation model. Dr. Chakrabarti may be reached at (617) 422-8915 or rchakrabarti@whitmorevaluation.com.
Rajesh Iyer — Chief Financial Officer, Penterra Pharmaceuticals Corp. (2200 Independence Boulevard, Princeton Junction, NJ 08550). Mr. Iyer is not attending the Appeals Conference but has been fully briefed on the issues under consideration and the taxpayer's positions. Mr. Iyer has authorized the settlement parameters communicated to outside counsel by PPC management.
Catherine Falk — Chief Executive Officer, Penterra Pharmaceuticals Corp. (2200 Independence Boulevard, Princeton Junction, NJ 08550). Ms. Falk is not attending the Appeals Conference but has been briefed on the case and, together with Mr. Iyer and the PPC Board of Directors, has authorized the settlement parameters communicated to outside counsel.
5.2 IRS Examination Team — Not Expected to Attend
Based on the taxpayer's understanding of standard IRS Appeals procedures and the absence of any contrary indication from the Appeals Office, the following members of the IRS examination team are not expected to attend the Appeals Conference. However, these individuals may be consulted by the Appeals Officer in connection with her review of the case file and the examination team's positions:
Ex Parte Communication Reservation: If any members of the IRS examination team are present at the Appeals Conference, or if it comes to the attention of the taxpayer's representatives that any examination team member participates in the conference in any capacity (including by telephone), Calderwood & Harkness LLP, on behalf of PPC, reserves the right to request the implementation of ex parte communication protocols in accordance with Rev. Proc. 2012-18, 2012-10 I.R.B. 455, as modified and superseded by Rev. Proc. 2015-41, 2015-35 I.R.B. 263, including the right to be present during any substantive communications between the Appeals Officer and the examination team and the right to respond to any new arguments, facts, or analyses raised by examination team members during the conference.
5.3 Conference Logistics
Materials to Be Brought to Conference:
1. Formal Protest of Penterra Pharmaceuticals Corp. (filed December 22, 2023), with all attachments and supporting schedules
2. Exhibit A — PPC/PBI Cost-Sharing Arrangement Agreement (as amended)
3. Exhibit B — PPC/PBI License Agreement for Legacy Intangible Property
4. Exhibit C — Summary of Whitmore Valuation Group CUT Analysis (14 Comparable Agreements)
5. Exhibit D — Summary of Whitmore Valuation Group CPM/TNMM Benchmarking Study (22 Comparable Companies)
6. Exhibit E — Summary of Whitmore Valuation Group PCT Income-Method/DCF Valuation
7. Whitmore Valuation Group Economic Reports (complete versions, including appendices and data sources)
8. PBI Substance Evidence Binder (organizational charts, employee headcount data, board minutes, operational activity summaries, functional analyses)
9. Supplemental Legal Authorities (case law, revenue rulings, regulations, OECD Transfer Pricing Guidelines excerpts)
10. Appeals Conference Document Binder — Table of Contents (master index of all materials organized by issue)
All materials have been assembled in the Appeals Conference Document Binder and copies will be available for use by the taxpayer's representatives during the conference. A copy of the Formal Protest and all exhibits has previously been transmitted to the Appeals Officer.
5.4 Background Case Reference
The following summary is provided for quick reference by the taxpayer's conference attendees:
Adjustment Breakdown:
• Cost-Sharing Arrangement (PCT Payment) Adjustment: $235,010,000
• Intercompany Royalty Rate Adjustment: $188,040,000
• Correlative Offset: ($42,650,000)
• Net Proposed Adjustment: $380,400,000
Subject: The proposed adjustments relate to transfer pricing under IRC § 482, specifically concerning (i) the arm's-length nature of the platform contribution transaction payments made under the qualified cost-sharing arrangement between PPC and Penterra Biopharma International DAC ("PBI"), an Irish designated activity company and wholly owned subsidiary of PPC, and (ii) the arm's-length royalty rate charged by PPC to PBI under the intercompany license agreement for PPC's legacy pharmaceutical intangible property. The IRS has proposed that PPC's PCT payments are understated and that PPC's intercompany royalty rate is below the arm's-length standard, resulting in the allocation of income from PBI to PPC in the aggregate net amount of $380,400,000 across the four tax years at issue. The IRS has also proposed a substantial valuation misstatement penalty of $15,977,000 under IRC § 6662(e).
DOCUMENT CLASSIFICATION: ATTORNEY-CLIENT PRIVILEGED / WORK PRODUCT
This document was prepared by Garrett Simmons of Calderwood & Harkness LLP in connection with the firm's representation of Penterra Pharmaceuticals Corp. in Matter No. 1018-00009. This document is protected by the attorney-client privilege and the work product doctrine. It is intended solely for distribution to the taxpayer's conference attendees identified in Sections 1, 2, and 3 above (PPC and Calderwood & Harkness LLP side only). This document must not be distributed to, shared with, or made available to any representative of the Internal Revenue Service, including the Appeals Officer or any member of the IRS examination team.
Calderwood & Harkness LLP — Matter No. 1018-00009 Prepared by: Garrett A. Simmons, Associate
Date: February 26, 2024
| Matter Reference: | Calderwood & Harkness LLP Matter No. 1018-00009 |
| IRS Exam Team ID: | LB&I-NE-TP-2022-00641 |
| Taxpayer: | Penterra Pharmaceuticals Corp. (EIN: 22-3741856) |
| Tax Years at Issue: | 2017, 2018, 2019, 2020 |
| Conference Date: | February 28, 2024 |
| Conference Location: | IRS Appeals Office, Manhattan, New York |
| Subject Matter: | IRC § 482 Transfer Pricing — Proposed Adjustments of $380,400,000 (NOPA dated October 12, 2023) |
| Prepared by: | Garrett Simmons, Associate, Calderwood & Harkness LLP |
| Date Prepared: | February 26, 2024 |
| Name: | Leonard R. Cross |
| Title: | Partner, Tax Department (Responsible Partner) |
| Organization: | Calderwood & Harkness LLP |
| Office Address: | 1735 Market Street, Suite 3100, Philadelphia, PA 19103 |
| Telephone: | (215) 554-6200 |
| Email: | lcross@calderwoodharkness.com |
| Bar Admissions: | New York (2001); New Jersey (2002); District of Columbia (2004) |
| Authorization: | IRS Form 2848 filed June 8, 2022 (CAF No. 4827-19558-R) |
| Name: | Sylvia R. Hartwell |
| Title: | Partner, Tax Department (Billing Partner) |
| Organization: | Calderwood & Harkness LLP |
| Office Address: | 600 Lexington Avenue, New York, NY 10022 |
| Telephone: | (212) 837-4100 |
| Email: | shartwell@calderwoodharkness.com |
| Bar Admissions: | New York (1998); District of Columbia (2000) |
| Authorization: | IRS Form 2848 filed June 8, 2022 (CAF No. 4827-19559-R) |
| Name: | Garrett A. Simmons |
| Title: | Associate, Tax Department (Lead Associate) |
| Organization: | Calderwood & Harkness LLP |
| Office Address: | 1735 Market Street, Suite 3100, Philadelphia, PA 19103 |
| Telephone: | (215) 554-6218 |
| Email: | gsimmons@calderwoodharkness.com |
| Bar Admissions: | New York (2019) |
| Authorization: | IRS Form 2848 filed June 8, 2022 (CAF No. 4827-19560-R) |
| Name: | Marcus T. Whitfield |
| Title: | Vice President, Global Tax |
| Organization: | Penterra Pharmaceuticals Corp. |
| Office Address: | 2200 Independence Boulevard, Princeton Junction, NJ 08550 |
| Telephone: | (609) 413-7700 |
| Email: | mwhitfield@penterrapharma.com |
| Name: | Deborah K. Staines |
| Title: | General Counsel |
| Organization: | Penterra Pharmaceuticals Corp. |
| Office Address: | 2200 Independence Boulevard, Princeton Junction, NJ 08550 |
| Telephone: | (609) 413-7720 |
| Email: | dstaines@penterrapharma.com |
| Name: | Dr. Helena M. Vasquez |
| Title: | Managing Director / Lead Economist |
| Organization: | Whitmore Valuation Group LLC |
| Office Address: | 200 Ashbury Asset Advisors, Suite 700, Boston, MA 02109 |
| Telephone: | (617) 422-8900 |
| Email: | hvasquez@whitmorevaluation.com | |
| Qualifications: | Ph.D. in Economics, Massachusetts Institute of Technology (2005); M.A. in Economics, University of Chicago (2001); B.A. in Mathematics and Economics, Amherst College (1999) | |
| Kovel Arrangement: | Kovel Letter Reference: 1018-00009-KV, executed June 20, 2022 | |
| Name: | Noreen A. Castañeda | |
| Title: | Appeals Officer | |
| Organization: | IRS Appeals, Manhattan Office | |
| Assignment Date: | January 2024 | |
| Name | Title | Organization |
| Gerald Meskill | Supervisory Revenue Agent / Team Manager | IRS Large Business & International Division (LB&I) |
| Patricia Dunleavy | Lead Revenue Agent | IRS Large Business & International Division (LB&I) |
| Dr. Alan Washburne | IRS Economist | IRS Transfer Pricing Practice, LB&I |
| Franklin Rosario | Attorney-Advisor | IRS Office of Chief Counsel |
| Donna Hirabayashi | Senior Counsel | IRS Office of Chief Counsel |
| Date: | February 28, 2024 | |
| Time: | 10:00 AM Eastern Standard Time | |
| Estimated Duration: | 3–4 hours | |
| Location: | IRS Appeals Office, Manhattan, New York | |
| Format: | In-person conference | |
| Taxpayer: | Penterra Pharmaceuticals Corp. | |
| EIN: | 22-3741856 | |
| IRS Exam Team ID: | LB&I-NE-TP-2022-00641 | |
| Tax Years at Issue: | 2017, 2018, 2019, 2020 | |
| NOPA Date: | October 12, 2023 | |
| Net Proposed Adjustment: | $380,400,000 | |
| Proposed Penalty: | $15,977,000 under IRC § 6662(e) (substantial valuation misstatement) |
| 30-Day Letter Date: | November 8, 2023 |
| Formal Protest Filed: | December 22, 2023 |