CALDERWOOD & HARKNESS LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103
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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Sylvia Hartwell, Billing Partner, Tax Department, Calderwood & Harkness LLP Garrett Simmons, Lead Associate, Tax Department, Calderwood & Harkness LLP Leila Nazari, Working Associate, Tax Department, Calderwood & Harkness LLP Marcus Whitfield, Vice President, Global Tax, Penterra Pharmaceuticals Corp. Deborah Staines, General Counsel, Penterra Pharmaceuticals Corp.
FROM: Leonard Cross, Responsible Partner, Tax Department, Calderwood & Harkness LLP
DATE: February 15, 2024
RE: Pre-Conference Memorandum — IRS Appeals Conference, Penterra Pharmaceuticals Corp. (EIN: 22-3741856), IRS Examination of Tax Years 2017–2020, Exam Team ID LB&I-NE-TP-2022-00641; C&H Matter No. 1018-00009
PURPOSE: This memorandum is intended to prepare the Calderwood & Harkness engagement team and Penterra Pharmaceuticals Corp. ("PPC") representatives for the IRS Appeals conference scheduled for February 28, 2024, at the IRS Appeals Office in Manhattan, New York. This memorandum summarizes (i) case background and procedural history, (ii) key arguments organized by issue, (iii) anticipated questions from Appeals Officer Noreen Castañeda and suggested responses, (iv) witness and participant preparation notes, (v) conference logistics, and (vi) document binder contents. Each attendee should review this memorandum carefully and come prepared to discuss its contents at the internal moot conference / dry run scheduled for February 23, 2024.
TABLE OF CONTENTS
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I. EXECUTIVE SUMMARY
Penterra Pharmaceuticals Corp. ("PPC") is challenging $380.4 million in net proposed adjustments across tax years 2017 through 2020, arising from the Internal Revenue Service's challenge to PPC's transfer pricing methodology for its Irish intellectual property holding structure. The adjustments were proposed in a Notice of Proposed Adjustment ("NOPA") issued October 12, 2023, and formalized in a 30-Day Letter issued November 8, 2023. The IRS's adjustments target three interrelated areas: (1) cost-sharing ratios under the qualified cost-sharing arrangement ("CSA") between PPC and its Irish subsidiary, Penterra Biopharma International DAC ("PBI"); (2) the royalty rate charged under a legacy IP license agreement between PPC and PBI; and (3) the adequacy of the platform contribution transaction ("PCT") payment made by PBI to PPC at the inception of the CSA in 2012. The IRS has also raised a secondary economic substance challenge to PBI's role as an IP-holding company and CSA participant.
PPC filed a formal Protest on December 22, 2023, contesting the NOPA and 30-Day Letter in their entirety. The case has been assigned to Appeals Officer Noreen Castañeda, who was designated in January 2024. The Appeals conference is scheduled for February 28, 2024, and will take place in person at the IRS Appeals Office in Manhattan, New York. We anticipate a full-day session running from approximately 10:00 AM to 4:00 PM, with a lunch break.
Our settlement target is resolution at 10–15% of the $380.4 million proposed adjustment, which corresponds to a range of $38.0 million to $57.1 million, with a hard ceiling of 20% ($76.1 million), as discussed and approved in the Settlement Authority Memorandum dated December 10, 2023. This settlement posture is supported by our assessment in the Hazards of Litigation Memorandum dated December 5, 2023, in which we concluded that the IRS faces significant hazards on all three primary issues, with probability-weighted downside exposure to PPC estimated at 10–18% of the proposed adjustment.
Full penalty abatement is a critical and non-negotiable objective. PPC has strong penalty protection under IRC § 6662(e)(3)(B) by virtue of contemporaneous transfer pricing documentation prepared by Crestfield & Associates LLP for all four tax years at issue. The documentation was thorough, timely prepared, and applied recognized methodologies. We are confident that any penalty should be fully abated.
The key deliverables at the conference will include: a detailed functional analysis demonstrating PBI's genuine economic substance, economic analyses prepared by Whitmore Valuation Group LLC (including CUT, CPM/TNMM, and DCF analyses), and a methodical rebuttal of IRS Economist Dr. Alan Washburne's economic analysis underpinning the NOPA. Our lead economist, Dr. Helena Vasquez of Whitmore Valuation Group, will attend and present at the conference.
This memorandum is organized to provide each team member with a comprehensive understanding of the case posture, the arguments we will advance, the questions we should anticipate, and the logistical details necessary to execute a successful conference. Separate memoranda have been prepared for witness preparation (Whitfield and Dr. Vasquez), the conference talking points script, and the document binder table of contents. Those memoranda should be reviewed in conjunction with this document.
II. CASE BACKGROUND AND PROCEDURAL HISTORY
A. The Parties and Corporate Structure
Penterra Pharmaceuticals Corp. ("PPC") is a Delaware corporation listed on the Nasdaq Stock Market under the ticker symbol PPCA. PPC is headquartered at 2200 Independence Boulevard, Princeton Junction, New Jersey 08550. PPC is a specialty pharmaceutical and biotechnology company focused on oncology, immunology, and rare disease therapeutics. For fiscal year 2020, PPC reported consolidated revenue of $6.82 billion and pre-tax income of $1.47 billion. PPC employs approximately 14,500 people globally, with the majority of its research and development personnel based in the United States, principally at its Princeton Junction headquarters and its research campuses in Cambridge, Massachusetts, and San Diego, California.
PPC's international operations are structured through a holding company chain as follows:
PPC (United States, ultimate parent) holds a 100% interest in Penterra Holdings Luxembourg S.à r.l. ("PHL"), a Luxembourg société à responsabilité limitée organized under Luxembourg law with its registered office at 14 rue Aldringen, L-1118 Luxembourg (Luxembourg Registre de Commerce et des Sociétés No. B 168452). PHL is treated as a disregarded entity for U.S. federal income tax purposes under Treas. Reg. § 301.7701-3. PHL was incorporated in 2012 as part of the restructuring that established PPC's current international intellectual property holding structure.
PHL, in turn, holds a 100% interest in Penterra Biopharma International DAC ("PBI"), an Irish designated activity company incorporated and registered in Ireland with its registered office at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4 (Irish Tax Reference No. 3218764T). PBI was established in 2012 as PPC's intellectual property holding company and non-Americas principal for purposes of the CSA and legacy IP license at issue in this examination. PBI's Managing Director is Aidan Naughton, who has served in that capacity since PBI's incorporation. For fiscal year 2020, PBI reported revenue of €2.14 billion and pre-tax income of €1.06 billion. PBI is subject to the standard Irish corporate tax rate of 12.5% and has claimed the reduced rate of 6.25% under Ireland's Knowledge Development box ("KDB") regime with respect to qualifying income from fiscal year 2016 forward. As of the end of 2020, PBI employed 185 people in Dublin, an increase from the 52 employees it had at establishment in 2012. This substantial growth in headcount reflects PBI's expanding operational role and is a central element of our economic substance defense.
Penterra Manufacturing Ireland Ltd. ("PMI") is an Irish limited company with its registered office at Ringaskiddy, County Cork, Ireland (Companies Registration Office No. 512347). PMI operates as a contract manufacturer for PBI under a cost-plus arrangement, with PMI compensated at cost plus 8%. PMI employs approximately 620 people and operates a modern pharmaceutical manufacturing facility at Ringaskiddy. PMI's manufacturing agreement with PBI is an intercompany arrangement, and PMI's profit level has not been challenged by the IRS in this examination.
PPC's key pharmaceutical products that generate significant non-Americas revenue through PBI include:
• Veritaxol (oncology): 2020 global net sales of $3.12 billion, of which $1.34 billion was attributable to non-Americas markets.
• Imvara (immunology): 2020 global net sales of $1.87 billion, of which $0.79 billion was attributable to non-Americas markets.
• Cerulon (rare disease): 2020 global net sales of $0.62 billion, of which $0.28 billion was attributable to non-Americas markets.
These three products represent the core of PBI's revenue base and are central to the transfer pricing disputes at issue.
B. The IP Structure Under Challenge
The IRS's examination focuses on PPC's transfer pricing arrangements with PBI, which consist of two principal intercompany transactions:
Cost-Sharing Arrangement (CSA). PPC and PBI entered into a qualified cost-sharing arrangement, effective July 1, 2012, under Treas. Reg. § 1.482-7. Under the CSA, PBI acquired the right to develop and exploit PPC's pharmaceutical intellectual property outside the Americas (defined as the United States, Canada, Mexico, and Central and South America) in exchange for (i) a platform contribution transaction ("PCT") payment and (ii) ongoing cost-sharing contributions proportional to PBI's reasonably anticipated benefits from the intangible development activity.
The PCT payment was a lump-sum payment of $312 million paid by PBI to PPC on July 1, 2012, representing the buy-in to pre-existing intellectual property, which at that time consisted primarily of clinical-stage and approved oncology compounds, including the foundational IP for Veritaxol and certain precursor compounds. The PCT was valued using a discounted cash flow ("DCF") methodology at a weighted average cost of capital ("WACC") of 9.8%, as documented in a contemporaneous valuation report prepared by Crestfield & Associates LLP.
The cost-sharing ratios for the tax years at issue, as reported by PPC on its federal income tax returns, were as follows:
These percentages were determined based on projected revenue splits using contemporaneous, well-documented models consistent with the reasonably anticipated benefits ("RAB") methodology prescribed by Treas. Reg. § 1.482-7(e). Revenue projections were prepared by PPC's internal forecasting team and validated by Crestfield & Associates in their contemporaneous transfer pricing documentation for each tax year.
Legacy IP Royalty. In addition to the CSA, PPC and PBI entered into a separate license agreement for pre-2012 compounds — that is, intellectual property that was fully developed and commercialized prior to the July 1, 2012 effective date of the CSA and was therefore not included in the CSA's intangible development activity. Under this license, PBI paid PPC a royalty of 4.5% of non-Americas net sales attributable to legacy compounds:
The declining trajectory of non-Americas net sales for legacy compounds reflects the natural product lifecycle decline of these older products, which were progressively replaced in revenue significance by CSA-funded compounds, principally Veritaxol and Imvara.
C. Procedural History
The following is a chronological summary of the key procedural events in this matter:
May 16, 2022: The IRS issued Letter 2205-A to PPC, formally opening the examination of PPC's federal income tax returns for tax years 2017 through 2020. The examination was designated under Exam Team ID LB&I-NE-TP-2022-00641, within the IRS Large Business and International Division ("LB&I"), Northeast Transfer Pricing Practice Area. Supervisory Revenue Agent Gerald Meskill was assigned as Team Manager, and Lead Revenue Agent Patricia Dunleavy was assigned as the lead examiner.
June 2, 2022: Calderwood & Harkness LLP executed an engagement letter with PPC to represent PPC in connection with the IRS examination. Leonard Cross was designated as the responsible partner.
June 8, 2022: IRS Form 2848 (Power of Attorney and Declaration of Representative) was filed with the IRS, authorizing Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari of Calderwood & Harkness LLP to represent PPC before the Internal Revenue Service in connection with the examination.
June 20, 2022: A Kovel engagement letter was executed with Whitmore Valuation Group LLC (reference 1018-00009-KV), engaging Whitmore as a consulting expert under the umbrella of the attorney-client privilege and the work-product doctrine, pursuant to the principles established in United States v. Kovel, 296 F.2d 918 (2d Cir. 1961). Dr. Helena Vasquez was designated as lead economist at a blended hourly rate of $650 per hour. The Kovel arrangement ensures that Whitmore's economic analyses and communications with Calderwood & Harkness are protected by the attorney-client privilege and work-product doctrine.
June 28, 2022: An opening conference was held with the IRS examination team. Calderwood & Harkness was represented by Leonard Cross and Garrett Simmons; PPC was represented by Marcus Whitfield (VP, Global Tax). The IRS was represented by Supervisory Revenue Agent Gerald Meskill and Lead Revenue Agent Patricia Dunleavy. The conference covered the scope of the examination, the examination timeline, and the IRS's initial document requests.
June 2022 – September 2023: Over the course of the examination, the IRS issued a total of 47 Information Document Requests ("IDRs"), all of which were timely responded to by PPC through Calderwood & Harkness. The IDR responses involved extensive document production covering the corporate structure and organizational charts, the CSA agreement and all amendments, the legacy IP license agreement, transfer pricing documentation prepared by Crestfield & Associates for tax years 2017–2020, PCT valuation workpapers and supporting schedules, R&D cost pool identification and allocation methodologies, PBI financial statements (audited and management accounts), PBI board minutes and corporate governance materials, PBI personnel data (including headcount, job descriptions, and organizational charts), regulatory expenditure data, banking records from Glenmore Bank Ireland plc, IRS Forms 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations), and numerous other categories of documents and data.
August 15, 2023: Calderwood & Harkness and PPC participated in a meeting with IRS Economist Dr. Alan Washburne to discuss his economic methodology and preliminary findings. This meeting provided significant insight into the analytical framework underlying the IRS's position, including Dr. Washburne's approach to CUT selection, his discount rate assumptions, and his projections of reasonably anticipated benefits.
September 20, 2023: Calderwood & Harkness participated in a call with IRS Office of Chief Counsel Attorney-Advisor Franklin Rosario, who was assigned to provide legal support to the examination team. Senior Counsel Donna Hirabayashi was also involved in the preparation of the NOPA and the 30-Day Letter, although she did not participate directly in the September 20 call. The call addressed the legal framework for the proposed adjustments and the economic substance challenge.
October 12, 2023: The IRS issued a Notice of Proposed Adjustment for all four tax years, proposing net adjustments of $380.4 million. The NOPA set forth the IRS's positions on the CSA cost-sharing ratios, the legacy IP royalty rate, the PCT valuation, and the economic substance of PBI.
November 8, 2023: The IRS issued a 30-Day Letter, formally advising PPC of its right to appeal the proposed adjustments to the IRS Office of Appeals.
December 22, 2023: PPC, through Calderwood & Harkness, filed a formal Protest with the IRS Office of Appeals, contesting all proposed adjustments in their entirety. An extension from the original 30-day response deadline had been granted by the examination team. The Protest included five exhibits (Exhibits A through E) and incorporated the economic analyses prepared by Whitmore Valuation Group.
January 2024: The case was assigned to Appeals Officer Noreen Castañeda within the IRS Office of Appeals.
February 28, 2024: Appeals conference scheduled (upcoming). This memorandum is prepared in anticipation of that conference.
It is noted that PPC was not a participant in the IRS Compliance Assurance Process ("CAP") for the tax years at issue. As a result, the examination followed the standard LB&I examination process rather than the accelerated timeline associated with CAP.
Regarding the statute of limitations, IRS Forms 872 (Consent to Extend the Time to Assess Tax) have been executed extending the assessment period for tax years 2017 and 2018 through December 31, 2024. The statutes of limitations for tax years 2019 and 2020 remain open through their normal assessment periods (generally three years from the filing date). The December 31, 2024, deadline for tax years 2017 and 2018 creates a meaningful time constraint on the resolution of this matter, and the team should remain mindful of this deadline throughout the Appeals process.
III. SUMMARY OF IRS PROPOSED ADJUSTMENTS
The IRS's proposed adjustments, as set forth in the NOPA dated October 12, 2023, total $380.4 million on a net basis across tax years 2017 through 2020. The adjustments are organized into three primary categories, with a correlative offset to avoid double-counting, as summarized below.
A. CSA Cost-Sharing Ratio Adjustments ($235.01M)
The IRS asserts that PPC's projections of reasonably anticipated benefits systematically understated the value attributable to U.S.-source research and development activities, resulting in PBI's cost-sharing percentages being set too low. The IRS proposes increasing PBI's cost-sharing percentage by 8 to 12 percentage points across the four tax years, as follows:
Subtotal of CSA Cost-Sharing Ratio Adjustments: $235.01 million.
The IRS's position rests primarily on Dr. Washburne's analysis, which recalculated reasonably anticipated benefits using ex post actual revenue data and a reallocation of value to the U.S. R&D function that, in our view, is inconsistent with the regulatory framework and empirically unsupported. We address this issue in detail in Section IV.A below.
B. Royalty Rate Adjustments ($188.04M)
The IRS proposes increasing the legacy IP royalty rate from PPC's reported 4.5% of non-Americas net sales to 11.0%, citing IRS-selected comparable uncontrolled transaction ("CUT") data from third-party pharmaceutical license agreements. The resulting additional royalty payments owed to PPC would be as follows:
Subtotal of Royalty Rate Adjustments: $188.04 million.
The IRS's proposed 11.0% rate is based on a set of purportedly comparable license agreements that, as we will demonstrate, fail basic comparability screens. The IRS's selected CUTs involve earlier-stage intellectual property, different therapeutic areas, different geographic scopes, and different risk profiles than the PPC/PBI legacy IP license. We address this issue in detail in Section IV.B below.
C. Correlative Offset (−$42.65M)
The examination team allowed a correlative offset of $42.65 million to avoid double-counting between the CSA cost-sharing ratio adjustments and the royalty rate adjustments. This offset reflects the fact that, to the extent PBI's cost-sharing payments to PPC are increased, certain of the same income streams should not also be subject to an increased royalty rate. The correlative offset was calculated by the IRS and reflects the examination team's recognition of the interrelationship between the two adjustment categories.
D. Net Proposed Adjustment and Penalties
The net proposed adjustment is calculated as follows:
In addition to the income adjustments, the IRS proposed a penalty under IRC § 6662(e) for substantial valuation misstatement in the transfer pricing context. The proposed penalty amount is calculated as 20% of the underpayment of tax attributable to the proposed adjustment:
$380.4M × 21% (federal corporate tax rate) × 20% (penalty rate) = $15.98 million (rounded).
The IRS reserved but did not assert the 40% gross valuation misstatement penalty under IRC § 6662(h). This is significant because the IRS's decision not to assert the heightened penalty suggests that even the examination team recognized the arguable nature of the proposed adjustments. Our penalty abatement defense is addressed in Section IV.E below.
E. IRS Economic Substance Challenge
In addition to the quantitative adjustments, the IRS partially asserted that PBI lacked sufficient economic substance to justify its role as the IP owner and CSA participant. The IRS argued that the key DEMPE functions — Development, Enhancement, Maintenance, Protection, and Exploitation of the intellectual property — remained predominantly in the United States, with PBI serving as little more than a conduit for the receipt of income attributable to U.S.-developed intellectual property.
This economic substance argument was characterized in the NOPA as a secondary position. It was not the IRS's primary basis for the proposed adjustments, but rather served as an analytical underpinning for both the CSA and royalty adjustments. The IRS's primary position is that the arm's-length prices for the intercompany transactions should be adjusted regardless of PBI's substance, based on the IRS's view of the correct transfer pricing methodologies and comparable data. Nevertheless, the economic substance challenge is an important element of the case because, if sustained, it could undermine PBI's status as a legitimate CSA participant and IP licensee, potentially supporting even more aggressive adjustments. Our defense on this issue is addressed in Section IV.D below.
IV. KEY ARGUMENTS BY ISSUE
This section presents our defense position on each of the five principal issues, organized by the structure of the proposed adjustments. For each issue, we set forth the governing legal framework, the factual basis for our position, the key supporting evidence and analyses, and recommended talking points for the conference.
A. CSA Cost-Sharing Ratios — Defense Position
1. Reasonably anticipated benefits (RAB) methodology is sound. PPC's cost-sharing percentages were determined based on projected revenue splits using contemporaneous, well-documented models that are fully consistent with Treas. Reg. § 1.482-7(e). The regulation requires that cost-sharing contributions be proportional to each participant's "reasonably anticipated benefits" from the intangible development activity. PPC and PBI applied this standard using a revenue-based RAB methodology, under which each participant's share of total anticipated revenue from products incorporating CSA-developed IP was used to determine the cost-sharing ratio. Revenue projections were prepared by PPC's internal forecasting team — which includes professionals with deep expertise in pharmaceutical market dynamics, product lifecycle modeling, and competitive intelligence — and were validated by Crestfield & Associates LLP in their contemporaneous transfer pricing documentation for each tax year. The projections were based on reasonable assumptions regarding market growth, competitive landscape, regulatory approvals, and product lifecycle dynamics as of the beginning of each tax year. Importantly, the RAB methodology was applied consistently from the CSA's inception in 2012 through each of the years at issue, without ad hoc adjustments or methodological changes.
2. Whitmore CPM/TNMM analysis confirms arm's-length results. In addition to the RAB methodology supporting the cost-sharing ratios, Whitmore Valuation Group performed a comparable profits method / transactional net margin method ("CPM/TNMM") analysis that tested PBI's operating margins against a set of 22 comparable distributors and IP-holding companies operating in the pharmaceutical and biotechnology sectors. The comparable set was screened using standard search criteria, including industry classification, functional comparability, geographic scope, and financial data availability. The results demonstrate that PBI's operating margins fell within the interquartile range in all four tax years, confirming that the overall profitability outcome produced by the CSA and related intercompany arrangements is consistent with arm's-length results. This analysis is detailed in Whitmore's CPM/TNMM Analysis Report (Tab 3 of the document binder).
3. IRS's proposed percentages are inflated and lack empirical support. The IRS's proposed increases of 8 to 12 percentage points to PBI's cost-sharing ratio lack a sound empirical basis. Dr. Washburne's analysis underpinning the proposed adjustments relied on ex post actual revenue data rather than ex ante reasonably anticipated benefits, which fundamentally departs from the regulatory standard. The regulations explicitly require that cost-sharing percentages be determined based on benefits that are "reasonably anticipated" at the relevant time — they do not permit or require the use of actual results that became known only after the fact. Dr. Washburne's approach effectively substitutes hindsight for the required prospective analysis, improperly penalizing PPC for the fact that PBI's non-Americas revenue grew faster than projected. This is precisely the outcome the RAB standard is designed to prevent: under a properly functioning CSA, the ex ante projections will sometimes overstate and sometimes understate actual results, but the arm's-length standard is satisfied so long as the projections were reasonable at the time they were made. Moreover, Dr. Washburne's reallocation of value to the U.S. R&D function fails to account for the value added by PBI's non-Americas regulatory, commercial, and market-access activities, which are significant and independently compensated through the CSA structure.
4. *Altera Corp. v. Commissioner* supports the validity of the CSA structure. The Ninth Circuit's decision in Altera Corp. v. Commissioner, 941 F.3d 1200 (9th Cir. 2019), affirmed the validity of CSA structures under Treas. Reg. § 1.482-7 and upheld the requirement that cost-sharing participants include stock-based compensation in the cost pool. While Altera addressed a specific regulatory question (the inclusion of stock-based compensation), the decision more broadly validated the CSA framework and the RAB methodology. PPC's CSA structure is fully consistent with the framework approved in Altera and satisfies all of the requirements of the qualified CSA regulations.
5. Key talking point. The RAB method used by PPC is the method prescribed by the regulations and was applied consistently from the CSA's inception in 2012 through each of the tax years at issue. The IRS's recharacterization substitutes hindsight for the required prospective analysis. PPC's cost-sharing ratios were based on reasonable, contemporaneous projections, and the resulting profit allocation to PBI is confirmed as arm's-length by Whitmore's independent CPM/TNMM benchmarking analysis. The IRS's proposed adjustments of 8 to 12 percentage points are unsupported by the data and inconsistent with the regulatory standard.
B. Legacy IP Royalty Rate — Defense Position
1. CUT analysis supports 4.5%. Whitmore Valuation Group performed a comprehensive comparable uncontrolled transaction analysis identifying 14 comparable uncontrolled pharmaceutical license agreements. The comparables were identified through a systematic search of publicly available license agreement databases, including Calderon Data Systems, SEC filings, and other industry sources, and were screened for comparability based on therapeutic area, development stage, geographic scope, exclusivity provisions, and royalty base (net sales). The resulting interquartile range of royalty rates is 3.1% to 6.8%, with a median of 4.4%. PPC's 4.5% royalty rate is virtually at the median of the comparable range and well within the arm's-length interquartile range established by the 14 agreements. The CUT analysis is detailed in Whitmore's CUT Analysis Report (Tab 2 of the document binder) and includes a detailed description of each comparable agreement, the comparability adjustments applied, and the resulting arm's-length range.
2. IRS's 11.0% rate is unsupported. The IRS's proposed royalty rate of 11.0% is based on a set of purportedly comparable license agreements that are not properly comparable to the PPC/PBI legacy IP license. We have conducted a detailed critique of the IRS's comparable selection and identified the following deficiencies:
(a) Several of the IRS's selected CUTs involve early-stage or pre-approval intellectual property, where the licensor bore significant development and regulatory risk. The PPC/PBI legacy IP license covers fully approved and commercially mature products, for which development risk has been largely eliminated. Royalty rates for early-stage IP are typically higher to compensate for this risk, and it is a fundamental error to apply those rates to a license covering approved products.
(b) The IRS's selected CUTs include agreements in therapeutic areas (e.g., cardiovascular, central nervous system) that have materially different market dynamics, competitive landscapes, and pricing environments than the oncology and immunology therapeutic areas in which PPC's legacy compounds operate.
(c) Several of the IRS's selected CUTs involve global license grants, while the PPC/PBI license is limited to non-Americas territories. Global licenses typically command higher royalty rates because they include the high-value U.S. market, which is the world's largest pharmaceutical market by revenue. The failure to adjust for this difference in geographic scope biases the IRS's comparables upward.
(d) The IRS's selected CUTs involve different risk allocation profiles, including differences in who bears regulatory, manufacturing, and commercialization risk. The PPC/PBI license allocates significant risk to PBI as the licensee, which supports a lower royalty rate.
We will present a side-by-side comparison of the IRS's CUTs against the Whitmore CUTs at the conference, demonstrating that the IRS's comparable selection does not satisfy the comparability requirements of Treas. Reg. § 1.482-4.
3. Treas. Reg. § 1.482-4 compliance. PPC's royalty methodology satisfies the comparability requirements under the CUT method as set forth in Treas. Reg. § 1.482-4(c). The regulation requires that a CUT involve substantially the same intangible property under substantially the same circumstances, or that adjustments be made to account for material differences. Whitmore's CUT analysis complies with these requirements by identifying closely comparable agreements and applying appropriate adjustments for differences in geographic scope, exclusivity provisions, and product lifecycle stage.
4. *Harborview Corporation, Inc. v. Commissioner* applicability. The Tax Court's analysis in Harborview Corporation, Inc. v. Commissioner, 154 T.C. 138 (2020), provides important guidance on the comparability standards applicable to CUT analyses in the transfer pricing context. In Harborview Corporation, the Tax Court rejected both the taxpayer's and the IRS's proposed CUTs as insufficiently comparable and ultimately applied a modified comparable method. The key takeaway from Harborview Corporation is that the CUT method requires close factual comparability, and both the IRS and the taxpayer bear the burden of demonstrating that their selected comparables satisfy this standard. PPC's CUT analysis, based on 14 well-screened comparables with appropriate adjustments, satisfies the Harborview Corporation comparability standard, while the IRS's CUTs do not.
5. Key talking point. The IRS's proposed 11.0% royalty rate is approximately 2.5 times PPC's 4.5% rate and lies far outside the arm's-length range established by 14 comparable agreements. Even the top of the interquartile range (6.8%) is far below the IRS's proposed 11.0%. The IRS's comparable selection is flawed because it includes agreements that are not properly comparable to the PPC/PBI license — they involve earlier-stage IP, different therapeutic areas, different geographic scopes, and different risk profiles. The IRS's rate cannot be sustained under the CUT comparability standards established by the regulations and by Harborview Corporation.
C. PCT Valuation — Defense Position
1. Background. Although the PCT payment of $312 million was made on July 1, 2012 — outside the tax years under examination (2017–2020) — the IRS used its view that the PCT was undervalued as a theoretical basis for adjusting the 2017–2020 cost-sharing ratios and royalty rates. The IRS's reasoning, as articulated in the NOPA and Dr. Washburne's analysis, is that an insufficient PCT payment at the inception of the CSA resulted in PBI acquiring pre-existing IP rights at below fair market value, which in turn distorted the baseline for the ongoing cost-sharing and royalty calculations. It is our position that this reasoning is flawed both because the PCT was within the arm's-length range and because the ongoing cost-sharing and royalty rates are independently determined under separate methodologies that do not depend on the PCT valuation.
2. Whitmore DCF analysis. Whitmore Valuation Group performed a discounted cash flow analysis of the pre-existing IP contributed to the CSA, using the income method. The analysis employed a weighted average cost of capital of 9.8%, which reflects the pharmaceutical industry's inherent development and regulatory risk, and yielded a PCT valuation range of $278 million to $361 million. PPC's actual PCT payment of $312 million falls near the midpoint of this range, confirming that the payment was arm's-length. The DCF analysis is detailed in Whitmore's PCT DCF Valuation Report (Tab 4 of the document binder).
3. IRS's WACC is inappropriate. The single most significant driver of the valuation gap between PPC's position and the IRS's position is the discount rate. The IRS applied a WACC of 7.2%, while PPC's position, supported by Dr. Vasquez's analysis, is that a WACC of 9.8% is appropriate. The IRS's 7.2% discount rate materially understates the risk inherent in pharmaceutical intellectual property commercialization. Dr. Vasquez's WACC derivation is based on:
(a) Beta comparables drawn from a set of publicly traded specialty pharmaceutical and biotechnology companies with similar risk profiles to PPC's intellectual property portfolio;
(b) An equity risk premium consistent with widely accepted market data sources (Penrose Health IT);
(c) Company-specific risk factors, including the concentration of PPC's pipeline in oncology (a highly competitive and rapidly evolving therapeutic area) and the regulatory risks inherent in international market access across 68 countries; and
(d) A cost of debt based on PPC's actual borrowing costs and credit profile at the time of the PCT in 2012.
The WACC analysis is presented in detail in Tab 5 of the document binder.
4. IRS's PCT value of $852 million is aggressive. Using a WACC of 7.2% and overly optimistic revenue projections, the IRS arrived at a PCT value of $852 million — a delta of $540 million over the actual $312 million PCT payment. This figure is driven primarily by the low discount rate, which effectively treats pharmaceutical IP commercialization as having a level of certainty that is unrealistic given the industry's well-documented rates of clinical trial failure, regulatory rejection, and competitive displacement. The IRS's revenue projections also incorporated assumptions about market penetration and pricing that, with the benefit of hindsight, proved overly optimistic even on an ex post basis. The aggressive nature of the IRS's valuation is underscored by the fact that the $852 million figure implies a valuation multiple for the pre-existing IP that is far above the multiples observed in comparable pharmaceutical IP transactions.
5. Key talking point. The WACC dispute is the single most significant driver of the valuation gap between PPC's position and the IRS's position. The pharmaceutical industry's inherent development and regulatory risk — including clinical trial failure rates that exceed 90% for early-stage compounds and significant post-approval commercial risks — justifies a meaningfully higher discount rate than the IRS applied. PPC's $312 million PCT payment is within the arm's-length range established by Whitmore's DCF analysis at the appropriate 9.8% WACC. The IRS's $852 million valuation is aggressive, empirically unsupported, and driven by an inappropriately low discount rate that fails to account for the real risks of pharmaceutical IP commercialization.
D. PBI Economic Substance — Defense Position
1. PBI is a substantive operating entity, not a shell. The IRS's suggestion that PBI lacks economic substance is contradicted by the overwhelming weight of the evidence. By 2020, PBI employed 185 people in Dublin — a more than three-fold increase from the 52 employees it had at its establishment in 2012. PBI occupies approximately 18,000 square feet of office space at its registered office at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4. The entity has a dedicated Managing Director, Aidan Naughton, who has served in that capacity since PBI's incorporation and who exercises genuine decision-making authority over PBI's commercial and operational activities.
2. DEMPE functions are performed in Ireland. The IRS's assertion that DEMPE functions remained predominantly in the United States is factually incorrect. PBI performs all five categories of DEMPE functions in Ireland:
Development and Enhancement. PBI co-funded research and development costs in amounts ranging from $186 million to $256 million annually during the 2017–2020 period, representing PBI's proportional share of qualified R&D costs under the CSA. Beyond cost-sharing, PBI independently managed regulatory submissions costing €47.2 million cumulatively across the four tax years. These regulatory expenditures funded the preparation, filing, and prosecution of marketing authorization applications and post-approval regulatory activities across PBI's 68 non-Americas country markets. PBI's regulatory affairs team, based in Dublin, independently managed these submissions and interacted directly with regulatory authorities including the European Medicines Agency ("EMA"), the UK Medicines and Healthcare products Regulatory Agency ("MHRA"), Health Canada (for Canadian operations prior to restructuring), and national regulatory agencies across Europe, Asia-Pacific, and other regions.
Maintenance and Protection. PBI bore market risk for non-Americas commercialization and was responsible for maintaining and protecting the intellectual property rights associated with its licensed and CSA-developed intangibles in non-Americas territories. PBI managed patent prosecution, enforcement, and defense in its designated territories, and engaged local patent counsel and regulatory advisors as needed.
Exploitation. PBI made independent pricing decisions across 68 country markets. PBI's commercial team, based in Dublin, developed market-specific pricing strategies, negotiated reimbursement and formulary access with national health systems and private payors, selected and managed distribution partners, and oversaw commercial operations across Europe, Asia-Pacific, Latin America (outside the Americas CSA territory), the Middle East, and Africa. PBI also managed contract manufacturing through its agreement with PMI at Ringaskiddy, Co. Cork, exercising control over production scheduling, quality assurance, and supply chain logistics.
3. Board governance. PBI's board of directors held 42 quarterly and special board meetings in Dublin during the 2017–2020 period. Board minutes, which have been produced in response to IRS IDRs, document substantive decision-making on pricing strategy, market entry and expansion, regulatory strategy, capital expenditures, and other operational matters. The board minutes reflect genuine deliberation and independent judgment by PBI's directors, not rubber-stamping of decisions made elsewhere in the PPC group.
4. Employee interviews. During August and September 2022, Calderwood & Harkness conducted interviews of 12 key PBI employees, including the Managing Director, heads of regulatory affairs, commercial operations, medical affairs, supply chain, finance, and legal. These interviews uniformly confirm substantive decision-making authority and operational independence at PBI. The employee interview summaries are included at Tab 7 of the document binder.
5. Independent banking and treasury. PBI maintains an independent banking relationship with Glenmore Bank Ireland plc, through which it manages its own cash flows, treasury operations, and intercompany settlement payments. PBI is not dependent on centralized PPC treasury functions for its day-to-day financial operations.
6. Capital expenditures. PBI has made significant capital expenditures during the 2017–2020 period, investing in regulatory submissions, IT infrastructure (including implementation of an ERP system and pharmacovigilance database), and equipment. These capital expenditures are consistent with PBI's role as a substantive operating entity and demonstrate genuine investment in its non-Americas business.
7. Key talking point. The IRS's economic substance challenge is factually baseless. PBI's headcount of 185 employees, its physical presence at 18,000 square feet of office space in Dublin, its governance structure with 42 board meetings over four years, its regulatory expenditures of €47.2 million, and its independent commercial decision-making across 68 markets demonstrate genuine economic substance that far exceeds what case law requires for an entity to be treated as a substantive participant in a CSA and a legitimate IP licensee. The IRS has not identified any specific deficiency in PBI's substance; instead, it has made a generalized assertion that DEMPE functions "remained" in the U.S. — an assertion that is refuted by the detailed evidence we will present.
E. Penalty Abatement — Defense Position
1. Contemporaneous documentation. PPC maintained contemporaneous transfer pricing documentation for all four tax years at issue, prepared by Crestfield & Associates LLP (engagement partner Martin Ogilvy; transfer pricing partner Susan Lam). The documentation was prepared prior to the filing deadline for each tax year's federal income tax return and satisfies the penalty-protection requirements under IRC § 6662(e)(3)(B) and Treas. Reg. § 1.6662-6. The documentation includes a comprehensive functional analysis of PPC and PBI, the application of the best method rule, selection and documentation of the CSA RAB methodology and the CUT method for the legacy IP royalty, identification and screening of comparable transactions, economic analyses supporting the arm's-length nature of the intercompany prices, and all other elements required by the contemporaneous documentation regulations.
2. Reasonable cause. PPC reasonably relied on qualified tax professionals — specifically, Crestfield & Associates (a nationally recognized transfer pricing consulting firm) and, for purposes of this examination, Calderwood & Harkness and Whitmore Valuation Group — in determining its transfer pricing positions. PPC applied recognized methodologies that are sanctioned by the Treasury regulations and supported by well-reasoned economic analyses. The reasonable cause and good faith defense under IRC § 6664(c) provides an additional basis for penalty abatement independent of the contemporaneous documentation defense.
3. No gross valuation misstatement. Even if the proposed adjustments were sustained in part, the magnitude of any sustained adjustment would not reach the threshold for the IRC § 6662(h) gross valuation misstatement penalty, which requires that the claimed value be 200% or more (or 50% or less) of the correct value. The IRS itself recognized this by reserving but not asserting the 40% penalty. The absence of a gross valuation misstatement assertion further supports full abatement of the 20% substantial valuation misstatement penalty, as it indicates that the exam team recognized the arguable nature of the transfer pricing positions at issue.
4. Key talking point. PPC's transfer pricing documentation is thorough, timely prepared, and based on sound economic analysis performed by qualified professionals. The documentation satisfies every requirement of Treas. Reg. § 1.6662-6, and PPC's reliance on qualified advisors (Crestfield & Associates) was reasonable. Penalties should be fully abated. The IRS's own decision not to assert the 40% gross valuation misstatement penalty underscores the inherent reasonableness of PPC's transfer pricing positions.
V. ANTICIPATED APPEALS OFFICER QUESTIONS AND SUGGESTED RESPONSES
The following section sets forth questions that we anticipate Appeals Officer Noreen Castañeda may pose at the conference, along with suggested responses. These questions are based on our review of the NOPA, the examination team's workpapers (to the extent available), our experience with similar Appeals conferences in transfer pricing matters, and the specific issues raised in this case. Each participant should be familiar with these questions and responses, though Leonard Cross will serve as the primary respondent unless a question is directed to a specific participant.
A. On the CSA Cost-Sharing Ratios
Q1: "Why did PBI's cost-sharing percentage increase from 38.2% to 42.7% over the 2017–2020 period?"
Suggested Response: The increase in PBI's cost-sharing percentage reflects the natural growth in PBI's non-Americas revenue as a share of total anticipated benefits from CSA-developed intellectual property, consistent with the product lifecycle expansion of key products — particularly Veritaxol and Imvara — outside the Americas. As these products gained regulatory approvals and achieved market penetration in additional non-Americas markets during this period, PBI's share of reasonably anticipated benefits increased proportionally. This is exactly the dynamic that the RAB methodology is designed to capture: as actual and anticipated revenue shifts between CSA participants over time, cost-sharing ratios adjust accordingly. The gradual nature of the increase — approximately one percentage point per year — is consistent with orderly market expansion and does not suggest any manipulation or inappropriate allocation of benefits.
Q2: "Why shouldn't actual (ex post) revenue splits be used rather than projected benefits to determine cost-sharing ratios?"
Suggested Response: Treas. Reg. § 1.482-7(e)(1) expressly requires the use of "reasonably anticipated benefits" in determining cost-sharing ratios. This is an ex ante standard that requires the use of prospective projections, not retrospective actual results. The reason for this regulatory choice is straightforward: the cost-sharing ratio is meant to allocate the costs of intangible development activity based on expected future benefits at the time the costs are incurred, not based on outcomes that are known only with hindsight. If actual results were used, participants would be unable to determine their cost-sharing obligations in real time, and the entire CSA framework would be undermined by the uncertainty of future adjustments based on outcomes that depend on market conditions, competitive dynamics, and regulatory events beyond the participants' control. The use of actual results would conflate the CSA calculation with hindsight analysis and would be inconsistent with the regulatory standard. PPC's projections were reasonable at the time they were made and were prepared by experienced forecasting professionals, as documented in the Crestfield transfer pricing documentation.
Q3: "How do you respond to Dr. Washburne's assertion that the U.S. R&D function is the primary value driver and that PBI's cost-sharing percentages should be higher?"
Suggested Response: We agree that U.S.-based R&D is an important value driver — that is precisely why PBI makes substantial cost-sharing payments to PPC, ranging from $186 million to $256 million per year during the period at issue, to compensate PPC for PBI's access to U.S. R&D. The CSA is the mechanism by which PBI pays for that value. However, PBI independently drives significant value in non-Americas markets through regulatory, commercial, and market-access activities performed by its 185 employees in Dublin. These activities include securing regulatory approvals, developing pricing and reimbursement strategies, selecting and managing distribution partners, and making independent commercial decisions across 68 country markets. Dr. Washburne's analysis fails to account for this value creation by PBI and instead attributes virtually all residual value to U.S. R&D, which is inconsistent with the arm's-length standard and the facts of this case.
B. On the Royalty Rate
Q4: "Why is 4.5% the right royalty rate when the IRS has identified comparable agreements supporting an 11.0% rate?"
Suggested Response: Our CUT analysis identifies 14 well-screened comparable pharmaceutical license agreements, applying rigorous comparability criteria consistent with Treas. Reg. § 1.482-4. The interquartile range of royalty rates across these 14 comparables is 3.1% to 6.8%, with a median of 4.4%. PPC's 4.5% rate is virtually at the median and falls well within the arm's-length range. The IRS's comparables, by contrast, fail basic comparability screens. They include agreements involving earlier-stage intellectual property (where higher royalty rates compensate for development risk that is not present in PPC's legacy compounds), different therapeutic areas with different market dynamics, global geographic scopes (which command higher rates because they include the U.S. market), and different risk allocation profiles. We have prepared a detailed side-by-side critique of each of the IRS's selected CUTs, which Dr. Vasquez will present at the conference. The bottom line is that none of the IRS's CUTs is sufficiently comparable to support an 11.0% rate.
Q5: "What adjustments, if any, did you make to the CUT comparables for differences in comparability?"
Suggested Response: Dr. Vasquez applied standard adjustments to account for material differences between the comparable agreements and the PPC/PBI license. Specifically, adjustments were made for geographic scope (to normalize for differences between regional and global licenses), exclusivity provisions (to account for differences in whether the license grants exclusive or non-exclusive rights), and product lifecycle stage (to adjust for differences in the maturity and commercial establishment of the licensed products). Each adjustment is documented in Whitmore's CUT Analysis Report, including the quantitative basis for the adjustment and its directional effect on the royalty rate. These adjustments are consistent with standard transfer pricing practice and are required by Treas. Reg. § 1.482-4(c)(2) when material differences exist between the controlled and uncontrolled transactions.
Q6: "Are the legacy compounds declining in value, and if so, how does that affect the appropriate royalty rate?"
Suggested Response: Yes — non-Americas net sales for legacy compounds declined from $814.6 million in 2017 to $624.1 million in 2020, a decline of approximately 23% over the four-year period. This reflects the natural product lifecycle decline of these older products as they face generic competition, loss of patent exclusivity in certain markets, and displacement by newer therapies. This declining revenue trajectory is directly relevant to the appropriate royalty rate because it demonstrates that the income-generating potential of the licensed IP is diminishing over time. Economic logic supports a lower royalty rate for declining-value IP, not a higher one. The IRS's proposed increase from 4.5% to 11.0% is inconsistent with the economic reality of declining legacy compound revenues.
C. On the PCT Valuation
Q7: "The PCT was paid in 2012, which is outside the exam years. Why is this relevant to the 2017–2020 adjustments?"
Suggested Response: We agree that the PCT payment is outside the exam years, and we have raised this point in our Protest. The IRS is using the alleged PCT undervaluation as a theoretical basis for adjusting the 2017–2020 cost-sharing and royalty payments — essentially arguing that an insufficient PCT payment at the inception of the CSA created a distorted baseline that carried forward into subsequent years. We respond to this argument on two levels. First, the PCT was within the arm's-length range: Whitmore's DCF analysis yields a PCT valuation range of $278 million to $361 million at a 9.8% WACC, and PPC's $312 million payment falls near the midpoint of that range. Second, even if there were a PCT valuation issue, the ongoing cost-sharing ratios and royalty rates are independently determined under separate methodologies (RAB and CUT, respectively) and do not mechanically depend on the PCT valuation. The IRS's attempt to use a PCT argument to inflate 2017–2020 adjustments is analytically unsound.
Q8: "Why is 9.8% the correct WACC rather than the IRS's 7.2%?"
Suggested Response: Dr. Vasquez will present the full WACC derivation, but I can summarize the key points. The WACC of 9.8% is based on pharmaceutical-industry beta comparables drawn from publicly traded specialty pharmaceutical and biotechnology companies, an equity risk premium consistent with widely accepted market data, company-specific risk factors reflecting the concentration of PPC's pipeline in oncology and the regulatory complexities of multi-country commercialization, and PPC's actual cost of debt at the time of the 2012 PCT. The IRS's 7.2% rate understates the risk inherent in pharmaceutical IP commercialization. The pharmaceutical industry is characterized by high rates of clinical trial failure — exceeding 90% for early-stage compounds — significant post-approval commercial risks including competition, generic entry, and pricing pressure, and substantial regulatory uncertainty across multiple jurisdictions. These risk factors are well-documented in the academic and industry literature and are appropriately reflected in a discount rate of 9.8%. The 2.6 percentage point difference in WACC (9.8% vs. 7.2%) is the primary driver of the $540 million gap between Whitmore's PCT valuation ($278M–$361M) and the IRS's PCT valuation ($852M).
D. On PBI Economic Substance
Q9: "How many of PBI's 185 employees are involved in DEMPE functions versus administrative roles?"
Suggested Response: Approximately 140 of PBI's 185 employees are directly engaged in core DEMPE functions, including regulatory affairs, medical affairs, commercial strategy, supply chain management, and market access. The remaining approximately 45 employees provide support functions including finance, legal, human resources, IT, and general administration. Even these support functions, however, are integral to PBI's operations as a substantive business entity. We have detailed role descriptions and interview summaries for 12 key PBI employees, which are included at Tab 7 of the document binder, and PBI organizational charts and headcount data have been produced in response to IRS IDRs.
Q10: "Who makes pricing decisions — PBI in Dublin or PPC in New Jersey?"
Suggested Response: PBI makes independent pricing decisions across 68 country markets. PBI's commercial and market-access teams, based in Dublin, develop market-specific pricing strategies based on local competitive dynamics, regulatory requirements, reimbursement frameworks, and payor negotiations. This is documented in multiple sources: PBI board minutes reflecting board-level review and approval of pricing strategies, internal PBI pricing approval workflows and decision memoranda, and the 12 key employee interviews conducted in August and September 2022. PPC's U.S. operations have no authority over PBI's non-Americas pricing decisions. While PBI may consider global coordination principles and brand consistency guidelines, the ultimate pricing decisions for non-Americas markets are made by PBI's Dublin-based team under the supervision of PBI's Managing Director and board.
Q11: "Does PBI have authority to enter into contracts independently?"
Suggested Response: Yes. PBI is a separately incorporated Irish designated activity company with its own board of directors, its own Managing Director (Aidan Naughton), and its own corporate governance structure. PBI has the legal authority and the practical capacity to enter into contracts independently, and it exercises that authority regularly. PBI executes distribution agreements with third-party distributors across its 68 markets, files regulatory submissions with regulatory authorities in its own name, and has entered into the manufacturing agreement with PMI on an arm's-length basis. PBI's contracting authority is documented in its corporate governance documents, board minutes, and executed contracts, all of which have been produced in response to IRS IDRs.
E. On Penalties
Q12: "Was the transfer pricing documentation prepared contemporaneously?"
Suggested Response: Yes. Crestfield & Associates LLP prepared contemporaneous transfer pricing documentation for each of the four tax years at issue — 2017, 2018, 2019, and 2020. The documentation was completed and in existence by the due date (including extensions) for filing the federal income tax return for each respective year, satisfying the contemporaneous documentation requirements of Treas. Reg. § 1.6662-6. The documentation was prepared under the supervision of Crestfield engagement partner Martin Ogilvy and transfer pricing partner Susan Lam, both of whom are recognized experts in pharmaceutical transfer pricing. The documentation includes all of the elements required by the regulations, including a description of the controlled transactions, a functional analysis, the selection and application of the best method, identification of comparable transactions, and the economic analyses supporting the arm's-length nature of the intercompany prices.
Q13: "Did PPC obtain an independent economic analysis before filing?"
Suggested Response: Yes. Crestfield's contemporaneous transfer pricing documentation included comprehensive benchmarking analyses applying the CUT method (for the legacy IP royalty), the CPM/TNMM (as a corroborative method for the overall intercompany pricing structure), and the income method / DCF analysis (for the PCT valuation at inception). In addition, PPC's internal tax and forecasting teams performed their own analysis supporting the CSA cost-sharing ratios and royalty positions, which was reviewed and validated by Crestfield in the course of preparing the contemporaneous documentation. PPC took its transfer pricing documentation obligations seriously and invested significant resources in ensuring that its positions were well-supported by independent professional analysis.
VI. OUR SETTLEMENT POSTURE
This section is designated for internal use only and must not be shared with or disclosed to the IRS, Appeals Officer Castañeda, or any third party. All team members should be mindful of the privileged nature of this section during the conference.
Opening position. The proposed $380.4 million adjustment is unsupported by the facts, the applicable law, and sound economic analysis, and should be eliminated in its entirety. PPC's transfer pr