CONFIDENTIAL — ATTORNEY WORK PRODUCT — SUBJECT TO REVISION
CALDERWOOD & HARKNESS LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103
DRAFT TRANSMITTAL MEMORANDUM
March 22, 2024
VIA EMAIL AND SECURE FILE TRANSFER
Noreen Castañeda Appeals Officer, IRS Independent Office of Appeals 290 Broadway, 14th Floor New York, NY 10007
Franklin Rosario, Attorney-Advisor Donna Hirabayashi, Senior Counsel IRS Office of Chief Counsel (Large Business & International) 26 Federal Plaza, Room 3600 New York, NY 10278
Re: Penterra Pharmaceuticals Corp. (EIN: 22-3741856) Proposed Closing Agreement on Final Determination Covering Specific Matters (IRS Form 906) — Tax Years 2017, 2018, 2019, and 2020 Examination Team ID: LB&I-NE-TP-2022-00641 C&H Matter No.: 1018-00009
Dear Ms. Castañeda, Mr. Rosario, and Ms. Hirabayashi:
Enclosed for your review and comment is a draft Closing Agreement on Final Determination Covering Specific Matters (IRS Form 906), prepared by this firm on behalf of our client, Penterra Pharmaceuticals Corp. ("PPC"), in connection with the settlement of the transfer pricing examination for tax years 2017 through 2020. This draft has been prepared following PPC's acceptance, on March 22, 2024, of the Appeals settlement offer communicated on March 15, 2024.
This draft reflects our understanding of the terms agreed upon during the Appeals conference held on February 28, 2024, and as memorialized in the settlement offer letter dated March 15, 2024. We have endeavored to capture the substance and intent of the agreed resolution; however, we recognize that the IRS may wish to propose conforming edits, clarifications, or modifications to ensure consistency with internal IRS drafting conventions and the requirements of IRC § 7121.
We respectfully request that you review this draft and provide any markup, comments, or suggested revisions at your earliest convenience. We note that the parties have expressed a mutual interest in finalizing and executing this agreement on or about March 29, 2024, and we are prepared to accommodate an expedited review schedule to meet that target.
Should you have any questions regarding this draft or wish to discuss any provision, please do not hesitate to contact the undersigned at (215) 864-2200 or by email at lcross@calderwoodharkness.com.
Very truly yours,
Leonard Cross Partner, Tax Department Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 864-2200 Facsimile: (215) 864-2201
Email: lcross@calderwoodharkness.com
cc: Sylvia Hartwell, Calderwood & Harkness LLP Garrett Simmons, Calderwood & Harkness LLP Leila Nazari, Calderwood & Harkness LLP Marcus Whitfield, VP, Global Tax, Penterra Pharmaceuticals Corp.
Enclosure: Draft IRS Form 906 — Closing Agreement on Final Determination Covering Specific Matters
DEPARTMENT OF THE TREASURY — INTERNAL REVENUE SERVICE
CLOSING AGREEMENT ON FINAL DETERMINATION COVERING SPECIFIC MATTERS
Form 906 (Rev. 3-2024)
Under Section 7121 of the Internal Revenue Code of 1986, as amended
DRAFT — FOR IRS REVIEW — SUBJECT TO REVISION Prepared by Calderwood & Harkness LLP — C&H Matter No. 1018-00009 Draft Date: March 22, 2024
CLOSING AGREEMENT ON FINAL DETERMINATION COVERING SPECIFIC MATTERS
This Closing Agreement on Final Determination Covering Specific Matters ("Agreement") is entered into pursuant to the authority granted under Section 7121 of the Internal Revenue Code of 1986, as amended ("IRC" or "Code"), by and between:
Penterra Pharmaceuticals Corp. ("PPC" or "Taxpayer"), a Delaware corporation with its principal place of business at 2200 Independence Boulevard, Princeton Junction, New Jersey 08550, Employer Identification Number 22-3741856;
and
The Commissioner of Internal Revenue (the "Commissioner" or "IRS"), acting through authorized delegates.
This Agreement relates to specific matters arising under IRC § 482 and the Treasury Regulations promulgated thereunder, for the federal income tax years ended December 31, 2017, December 31, 2018, December 31, 2019, and December 31, 2020 (each a "Tax Year" and collectively the "Tax Years" or "TY 2017–2020"), as more particularly described herein.
PART I — IDENTIFICATION OF TAXPAYER
Section 1.1 — Taxpayer Information
The taxpayer that is a party to this Agreement is identified as follows:
PPC is a domestic corporation organized under the laws of the State of Delaware and is engaged in the research, development, manufacture, and commercialization of pharmaceutical products, with operations in the United States and internationally. PPC files its federal income tax returns on a calendar-year basis on IRS Form 1120, U.S. Corporation Income Tax Return. The federal income tax returns for each of the Tax Years at issue were timely filed with the Internal Revenue Service.
Section 1.2 — Authorized Representative
PPC is represented in this matter by Calderwood & Harkness LLP, a law firm with offices at 1735 Market Street, Suite 3100, Philadelphia, Pennsylvania 19103. The following individuals are authorized representatives of PPC for purposes of this examination and closing agreement, pursuant to IRS Form 2848 (Power of Attorney and Declaration of Representative), filed with the Internal Revenue Service on June 8, 2022:
(a) Leonard Cross, Partner, Tax Department — Responsible Partner and Primary Contact
(b) Sylvia Hartwell, Partner, Tax Department
(c) Garrett Simmons, Counsel, Tax Department
(d) Leila Nazari, Associate, Tax Department
All correspondence regarding this Agreement should be directed to:
Leonard Cross Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 864-2200 Facsimile: (215) 864-2201
Email: lcross@calderwoodharkness.com
Section 1.3 — IRS Office
The IRS personnel involved in this matter are identified as follows:
The examination was conducted by the Large Business & International Division under Examination Team ID LB&I-NE-TP-2022-00641. Following the issuance of the 30-Day Letter and the filing of a formal protest by PPC, the case was referred to the IRS Independent Office of Appeals and assigned to Appeals Officer Noreen Castañeda in January 2024.
PART II — RECITALS AND BACKGROUND
Section 2.1 — Examination History
The following sets forth the procedural history of the examination and administrative proceedings that led to this Agreement:
(a) On May 16, 2022, the IRS opened an examination of PPC's federal income tax returns for TY 2017, 2018, 2019, and 2020 by issuing IRS Letter 2205-A (Notification of Examination). The examination was assigned to the Large Business & International Division under Examination Team ID LB&I-NE-TP-2022-00641, with Patricia Dunleavy as Lead Revenue Agent and Gerald Meskill as Supervisory Revenue Agent and Team Manager.
(b) Between June 2022 and September 2023, the IRS examination team issued a total of forty-seven (47) Information Document Requests ("IDRs") to PPC and its authorized representatives. PPC responded substantively to each IDR within the timelines established under IRS procedures or as extended by mutual agreement.
(c) On October 12, 2023, the IRS examination team issued a Notice of Proposed Adjustment ("NOPA") setting forth the IRS's proposed adjustments to PPC's taxable income for all four Tax Years. The NOPA addressed the transfer pricing issues described in Section 2.3 below and proposed the adjustments summarized in Section 2.4 below.
(d) On November 8, 2023, the IRS issued a 30-Day Letter (Letter 950) to PPC, enclosing the NOPA and Revenue Agent's Report and advising PPC of its right to file a written protest and request a conference with the IRS Independent Office of Appeals.
(e) On December 22, 2023, PPC, through its authorized representatives at Calderwood & Harkness LLP, timely filed a formal written Protest with the IRS Independent Office of Appeals, contesting each of the proposed adjustments set forth in the NOPA.
(f) In January 2024, the case was assigned to Appeals Officer Noreen Castañeda of the IRS Independent Office of Appeals.
(g) On February 28, 2024, an Appeals conference was held at the IRS Appeals Office located at 290 Broadway, Manhattan, New York, New York. Present at the conference were Appeals Officer Castañeda, IRS Office of Chief Counsel attorneys Franklin Rosario and Donna Hirabayashi, and PPC's authorized representatives Leonard Cross, Sylvia Hartwell, Garrett Simmons, and Leila Nazari of Calderwood & Harkness LLP. Marcus Whitfield, Vice President, Global Tax of PPC, also participated in the conference.
(h) On March 15, 2024, Appeals Officer Castañeda communicated a written settlement offer to PPC's authorized representatives.
(i) On March 22, 2024, PPC, through its authorized representatives, accepted the settlement offer. This Agreement memorializes the terms of that settlement.
Section 2.2 — Related Entities
The intercompany transactions that are the subject of this Agreement involve the following related entities of PPC:
(a) Penterra Biopharma International DAC ("PBI") — PBI is a Designated Activity Company organized under the laws of Ireland, with its registered office at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland. PBI's Irish Tax Reference Number is 3218764T. PBI serves as the intellectual property-holding company and principal entity for the commercialization of PPC's pharmaceutical products in non-Americas territories. PBI is a party to the cost-sharing arrangement described in Section 2.3(a) below and is the licensee of certain legacy intellectual property described in Section 2.3(b) below.
(b) Penterra Holdings Luxembourg S.à r.l. ("PHL") — PHL is a société à responsabilité limitée organized under the laws of the Grand Duchy of Luxembourg, with its registered office at 14, rue Aldringen, L-1118 Luxembourg. PHL's Luxembourg Registre de Commerce et des Sociétés ("RCS") Number is B 168452. PHL is the sole shareholder of PBI and is itself a wholly owned subsidiary of PPC. For United States federal income tax purposes, PHL is treated as a disregarded entity pursuant to Treasury Regulations § 301.7701-3.
(c) Penterra Manufacturing Ireland Ltd. ("PMI") — PMI is an Irish private limited company, with its registered office at Unit 7, Ringaskiddy Industrial Estate, Co. Cork T12 PX29, Ireland. PMI's Irish Companies Registration Office ("CRO") Number is 512347. PMI operates as a contract manufacturer under a cost-plus arrangement with PBI, receiving compensation equal to its total costs of production plus a markup of eight percent (8%).
The corporate ownership structure relevant to this Agreement is as follows: PPC (U.S. parent) owns 100% of PHL (Luxembourg, disregarded entity), which owns 100% of PBI (Ireland, IP-holding company and CSA participant). PBI, in turn, contracts with PMI (Ireland, contract manufacturer) for production services. For U.S. federal income tax purposes, PHL is disregarded, and PBI is treated as a controlled foreign corporation ("CFC") within the meaning of IRC § 957.
Section 2.3 — Issues Under Examination
The examination conducted by the IRS concerned the transfer pricing methodology applied by PPC to intercompany transactions between PPC and PBI under IRC § 482 and the Treasury Regulations promulgated thereunder. Specifically, the IRS challenged the following matters:
(a) Cost-Sharing Arrangement ("CSA") — Cost-Sharing Percentages and Platform Contribution Transaction ("PCT") Valuation. PPC and PBI entered into a cost-sharing arrangement, effective July 1, 2012, pursuant to which PPC and PBI agreed to share the costs of developing intangible property related to PPC's pharmaceutical product pipeline. Under the CSA, each party's share of intangible development costs ("Coss") was determined based on each party's reasonably anticipated benefit ("RAB") share from the exploitation of the cost-shared intangibles. In connection with the commencement of the CSA, PBI made a platform contribution transaction ("PCT") payment to PPC in the amount of $312,000,000 (three hundred twelve million dollars), representing compensation for PPC's pre-existing intangible property made available to PBI as part of the CSA. The IRS challenged both PBI's cost-sharing percentages (contending they were too low) and the adequacy of the PCT payment, asserting that the values did not reflect arm's-length consideration under IRC § 482 and Treasury Regulations § 1.482-7.
(b) Legacy intellectual Property Royalty Rate. Separate from the CSA, PPC licensed certain legacy pharmaceutical intellectual property to PBI for exploitation in non-Americas territories under a license agreement that provided for an intercompany royalty rate of 4.5% (four and one-half percent) of net sales. The IRS challenged this royalty rate as insufficient compensation for the licensed intangible property, asserting that an arm's-length royalty rate would be significantly higher than the rate applied by PPC. The IRS's analysis relied upon comparable uncontrolled transaction ("CUT") and comparable profits methods under Treasury Regulations §§ 1.482-4 and 1.482-5.
(c) Economic Substance of PBI. The IRS raised questions concerning PBI's economic substance as the owner of intellectual property and as a participant in the CSA, including whether PBI performed sufficient development, enhancement, maintenance, protection, and exploitation ("DEMPE") functions in Ireland to justify its status as a bona fide IP owner and CSA participant. The IRS's position was informed by the principles articulated in Treasury Regulations § 1.482-4(f)(3) and the OECD Transfer Pricing Guidelines, Chapter VI.
Section 2.4 — IRS Proposed Adjustments (NOPA — October 12, 2023)
The Notice of Proposed Adjustment issued by the IRS examination team on October 12, 2023, proposed the following adjustments to PPC's taxable income for TY 2017 through 2020:
A. CSA Cost-Sharing Ratio Adjustments
The IRS proposed increasing PBI's cost-sharing percentages by approximately eight (8) to twelve (12) percentage points for each Tax Year, resulting in additional cost-sharing payments that would be owed by PBI to PPC. The proposed adjustments were as follows:
B. Legacy IP Royalty Rate Adjustments
The IRS proposed increasing the legacy intellectual property royalty rate from 4.5% to 11.0% of non-Americas net sales, resulting in additional royalty income to PPC. The proposed adjustments were as follows:
Note: The subtotal of $188,032,000 reflects the precise sum of the individual year amounts. The NOPA rounded this figure to $188,040,000. For purposes of this Agreement, the parties utilize the NOPA figure of $188,040,000.
C. Correlative Offset
The IRS examination team allowed a correlative offset of ($42,650,000) to prevent double-counting between the CSA cost-sharing adjustments and the legacy IP royalty rate adjustments, in recognition that certain of the adjusted amounts overlapped in their impact on PPC's taxable income.
D. Net Proposed Adjustment
E. Proposed Penalty
The IRS proposed a penalty under IRC § 6662(e) for substantial valuation misstatement in the amount of $15,977,000, computed as twenty percent (20%) of the underpayment of tax attributable to the proposed adjustments (approximately $380,400,000 × 21% × 20%, with minor rounding adjustments reflecting the blended rate applicable to TY 2017).
Section 2.5 — Taxpayer's Position
PPC maintained, and continues to maintain, that its transfer pricing methodologies — including the CSA cost-sharing percentages, the platform contribution transaction payment of $312,000,000, and the legacy intellectual property royalty rate of 4.5% of net sales — satisfied the arm's-length standard under IRC § 482 and the applicable Treasury Regulations, including but not limited to Treasury Regulations §§ 1.482-1(b), 1.482-1(d), 1.482-4, and 1.482-7.
PPC's positions were supported by contemporaneous transfer pricing documentation prepared by Crestfield & Associates LLP, an internationally recognized transfer pricing consulting firm, for each of the four Tax Years at issue. Such documentation was prepared in compliance with the requirements of IRC § 6662(e)(3)(B) and Treasury Regulations § 1.6662-6, and constituted a principal documentation study within the meaning thereof.
In addition, independent economic analyses performed by Whitmore Valuation Group LLC confirmed the arm's-length nature of PPC's intercompany pricing for both the cost-sharing arrangement and the legacy IP license. These analyses employed the comparable uncontrolled transaction method, the comparable profits method, and the residual profit split method, as appropriate to each category of transaction.
PPC entered into this Agreement as a compromise settlement of a bona fide dispute and does not, by virtue of this Agreement, concede or acknowledge that its transfer pricing methodologies were inconsistent with the arm's-length standard or otherwise non-compliant with the requirements of IRC § 482 or the regulations promulgated thereunder.
PART III — TERMS OF AGREEMENT (SPECIFIC MATTERS DETERMINED)
NOW, THEREFORE, IT IS HEREBY DETERMINED AND AGREED, for federal income tax purposes, with respect to the specific matters described below:
Section 3.1 — Adjustment to Taxable Income
The parties agree that PPC's taxable income as reported on its Forms 1120, U.S. Corporation Income Tax Returns, for TY 2017, 2018, 2019, and 2020, shall be increased by a total aggregate amount of Forty-Seven Million Six Hundred Thousand Dollars ($47,600,000), allocated among the Tax Years as set forth in Section 3.2 below.
This aggregate adjustment of $47,600,000 represents approximately 12.51% of the $380,400,000 net proposed adjustment set forth in the NOPA dated October 12, 2023, and reflects the compromise settlement reached between PPC and the IRS through the Appeals process.
This adjustment amount represents a negotiated resolution and does not constitute an admission, acknowledgment, or concession by PPC that its transfer pricing methodologies were not arm's-length, were otherwise non-compliant with IRC § 482, or resulted in a misallocation of income between PPC and PBI. Likewise, the IRS's agreement to this settlement amount does not constitute an acknowledgment that the full amount of the proposed adjustments set forth in the NOPA was unwarranted.
Section 3.2 — Allocation of Adjustment by Tax Year
The aggregate adjustment of $47,600,000 shall be allocated among the Tax Years as follows:
(a) TY 2017 (taxable year ended December 31, 2017): Increase in taxable income of Eleven Million Two Hundred Thousand Dollars ($11,200,000).
(b) TY 2018 (taxable year ended December 31, 2018): Increase in taxable income of Twelve Million Four Hundred Thousand Dollars ($12,400,000).
(c) TY 2019 (taxable year ended December 31, 2019): Increase in taxable income of Twelve Million Eight Hundred Thousand Dollars ($12,800,000).
(d) TY 2020 (taxable year ended December 31, 2020): Increase in taxable income of Eleven Million Two Hundred Thousand Dollars ($11,200,000).
The total of the adjustments set forth in subsections (a) through (d) above equals $47,600,000.
Section 3.3 — Tax Due and Payable
The additional federal income tax liability resulting from the agreed adjustments to taxable income is computed as follows:
(a) TY 2017: The taxable year ended December 31, 2017, is subject to the corporate income tax rate of thirty-five percent (35%) under IRC § 11, as in effect prior to the enactment of the Tax Cuts and Jobs Act of 2017 (Pub. L. 115-97). The additional tax for TY 2017 is computed as $11,200,000 × 35% = $3,920,000.
(b) TY 2018: The taxable year ended December 31, 2018, is subject to the corporate income tax rate of twenty-one percent (21%) under IRC § 11, as amended by the Tax Cuts and Jobs Act of 2017, effective for taxable years beginning after December 31, 2017. The additional tax for TY 2018 is computed as $12,400,000 × 21% = $2,604,000.
(c) TY 2019: The taxable year ended December 31, 2019, is subject to the corporate income tax rate of twenty-one percent (21%) under IRC § 11. The additional tax for TY 2019 is computed as $12,800,000 × 21% = $2,688,000.
(d) TY 2020: The taxable year ended December 31, 2020, is subject to the corporate income tax rate of twenty-one percent (21%) under IRC § 11. The additional tax for TY 2020 is computed as $11,200,000 × 21% = $2,352,000.
The aggregate additional federal income tax liability for TY 2017 through 2020 is approximately $11,564,000 (reflecting the sum of the amounts computed in subsections (a) through (d) above). The parties shall confirm the exact computation of additional tax liability prior to the execution of the final version of this Agreement, taking into account applicable tax rate schedules, any interactions with other items on PPC's returns, and any computational adjustments required by the IRS.
Note: For purposes of this draft, the aggregate additional tax is approximately $11,564,000. The parties' earlier estimates of approximately $10,000,000 in aggregate tax reflect rounding and may not account for the full impact of the TY 2017 rate differential. The parties to confirm exact computation prior to finalization.
Interest on Underpayment. Interest on the underpayment of tax resulting from the adjustments described herein shall be computed at the applicable federal underpayment rate under IRC § 6621 from the original due date of each return (or, if applicable, the date on which each payment was due) to the date of actual payment. Based on preliminary calculations, the estimated aggregate interest on underpayment is approximately $2,840,000. The exact amount of interest will be determined by the IRS at the time of assessment and billing and shall be paid by PPC in accordance with applicable law.
Section 3.4 — Penalty Abatement
The IRS agrees to abate in full the proposed penalty under IRC § 6662(e) (substantial valuation misstatement) in the amount of Fifteen Million Nine Hundred Seventy-Seven Thousand Dollars ($15,977,000).
The basis for abatement of the penalty is PPC's establishment of reasonable cause and good faith under IRC § 6664(c)(1), which provides that no penalty shall be imposed under IRC § 6662 with respect to any portion of an underpayment if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect thereto. In support of its reasonable cause defense, PPC demonstrated the following:
(a) PPC maintained contemporaneous transfer pricing documentation for each of the four Tax Years at issue, prepared by Crestfield & Associates LLP, a nationally recognized transfer pricing consulting firm. Such documentation met the requirements of IRC § 6662(e)(3)(B) and Treasury Regulations § 1.6662-6, and constituted a principal documentation study as described in Treasury Regulations § 1.6662-6(d)(2)(iii).
(b) PPC reasonably relied on qualified tax professionals — including both external advisors at Crestfield & Associates LLP and Whitmore Valuation Group LLC, and internal tax personnel — in developing and applying its transfer pricing methodologies for the intercompany transactions at issue.
(c) PPC's transfer pricing positions were not unreasonable or lacking in substantial authority, as evidenced by the fact that the methodologies employed were recognized transfer pricing methods under the applicable Treasury Regulations and were applied in a manner consistent with industry practice and the OECD Transfer Pricing Guidelines.
Accordingly, no penalty under IRC § 6662(e), or any other penalty provision of the Code, shall be assessed or collected with respect to the adjustments covered by this Agreement.
Section 3.5 — Characterization of Adjustment
The aggregate adjustment of $47,600,000 set forth in Section 3.1 represents a combined resolution of the following issues identified during the examination:
(a) The CSA cost-sharing percentage issue described in Section 2.3(a) above; and
(b) The legacy intellectual property royalty rate issue described in Section 2.3(b) above.
The settlement reflected in this Agreement represents a lump-sum compromise of both issues and does not allocate the adjustment between the CSA cost-sharing issue and the legacy IP royalty issue. For purposes of PPC's accounting, financial reporting, and any other purposes requiring such allocation, PPC may allocate the adjustment between the two issues in any reasonable manner.
The adjustment set forth in this Agreement does not constitute a finding, determination, or conclusion by the IRS that:
(i) PBI lacked economic substance or was not a bona fide entity for U.S. federal income tax purposes;
(ii) The CSA between PPC and PBI failed to meet the requirements of a qualified cost-sharing arrangement under Treasury Regulations § 1.482-7;
(iii) PBI did not perform sufficient DEMPE functions in Ireland to justify its role as an IP owner and CSA participant; or
(iv) PPC's transfer pricing methodologies, as applied, were unreasonable or lacked substantial authority.
The agreed adjustment incorporates and reflects the correlative offset principle under Treasury Regulations § 1.482-1(g), ensuring that the adjustment does not result in double-counting of income as between the CSA cost-sharing and legacy IP royalty rate issues.
Section 3.6 — No Precedential Effect
This Agreement relates solely to the specific matters described herein for TY 2017, 2018, 2019, and 2020. Neither the existence nor the terms of this Agreement shall constitute an admission by either party — PPC or the IRS — of the correctness or incorrectness of any position taken by either party with respect to the matters addressed herein. This Agreement shall not be cited, referenced, or used as precedent, authority, or evidence of any kind in any other tax proceeding, whether administrative or judicial, or for any tax year not covered by this Agreement.
Nothing in this Agreement shall affect, limit, or prejudice PPC's right to adopt, apply, or defend transfer pricing positions with respect to intercompany transactions for tax years that are not covered by this Agreement, including but not limited to tax years beginning after December 31, 2020. Similarly, nothing in this Agreement shall affect, limit, or prejudice the IRS's right to examine, challenge, or propose adjustments to PPC's transfer pricing for such other tax years.
PART IV — MUTUAL COVENANTS
Section 4.1 — Taxpayer's Covenants
PPC hereby covenants and agrees as follows:
(a) Amended Returns. PPC shall file amended federal income tax returns on Form 1120X (Amended U.S. Corporation Income Tax Return) for TY 2017, 2018, 2019, and 2020, reflecting the adjustments to taxable income set forth in Part III of this Agreement. Such amended returns shall be filed with the Internal Revenue Service within ninety (90) days of the date of execution of this Agreement by all parties.
(b) Payment of Tax and Interest. PPC shall make payment of all additional federal income tax and interest due as computed under Sections 3.3 of this Agreement within sixty (60) days of the date of assessment by the IRS. Payment shall be made by electronic funds transfer or such other method as the IRS may require.
(c) No Claim for Refund or Credit. PPC shall not file, and hereby waives any right to file, a claim for refund or credit with respect to the specific matters determined in this Agreement for TY 2017, 2018, 2019, and 2020. This waiver applies solely to the specific matters described in this Agreement and does not extend to claims for refund or credit with respect to any other items or issues on PPC's federal income tax returns for the covered Tax Years.
(d) Cooperation. PPC shall cooperate with the IRS in the processing and closing of the examination with respect to the issues covered by this Agreement, including by providing such additional information, documents, or computations as may be reasonably required to finalize the assessment and collection of the agreed amounts.
Section 4.2 — IRS Covenants
The IRS hereby covenants and agrees as follows:
(a) Finality. The specific matters determined in this Agreement are final and conclusive for TY 2017, 2018, 2019, and 2020, subject to the provisions of IRC § 7121 and the terms of this Agreement. The IRS shall not propose, assess, or collect any additional tax, penalty, or interest with respect to the specific matters determined herein for the covered Tax Years, except as expressly provided in this Agreement.
(b) No Reopening. The IRS shall not reopen the examination of the specific matters determined in this Agreement for the covered Tax Years, absent a showing of fraud, malfeasance, or misrepresentation of a material fact by PPC. This covenant does not limit the IRS's authority to examine other items or issues on PPC's federal income tax returns for the covered Tax Years that are not addressed by this Agreement, subject to applicable statutes of limitations.
(c) Closing of Examination. The IRS shall process the agreed adjustments and close Examination Team LB&I-NE-TP-2022-00641 with respect to the transfer pricing issues covered by this Agreement. The IRS shall issue appropriate closing letters and notifications to PPC and its authorized representatives upon the completion of the closing procedures.
Section 4.3 — Statute of Limitations
The parties acknowledge and confirm the following with respect to the applicable statutes of limitations:
(a) PPC and the IRS have executed IRS Forms 872 (Consent to Extend the Time to Assess Tax) extending the statute of limitations on assessment for TY 2017 through December 31, 2024, and for TY 2018 through December 31, 2024. The normal three-year period of limitations under IRC § 6501(a) for TY 2019 and TY 2020 had not expired as of the date of the examination and remains open as of the date of execution of this Agreement.
(b) The parties confirm that the statute of limitations on assessment remains open for all four Tax Years as of the date of execution of this Agreement.
(c) Upon execution of this Agreement by all parties, the assessment and collection of the amounts determined herein shall be governed by the provisions of IRC § 7121(b), which provides that the closing agreement shall be final and conclusive and, except upon a showing of fraud or malfeasance, or misrepresentation of a material fact, the case shall not be reopened as to the matters agreed upon or the agreement modified.
Section 4.4 — Competent Authority Reservation
PPC expressly reserves the right to seek relief under the mutual agreement procedure ("MAP") of the Convention between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains (the "U.S.-Ireland Income Tax Treaty"), Article 25, with respect to any double taxation arising from or related to the adjustments made pursuant to this Agreement.
The IRS's execution of this Agreement shall not preclude, prejudice, or otherwise limit any competent authority proceedings that PPC may initiate under the U.S.-Ireland Income Tax Treaty or any other applicable tax treaty. The terms of this Agreement shall be subject to any corresponding or correlative adjustments that may result from competent authority proceedings, in accordance with applicable procedures and Revenue Procedure 2015-40 (or any successor guidance).
PPC acknowledges that the initiation of competent authority proceedings is subject to separate procedural requirements and timelines, and that this Agreement does not guarantee any particular outcome in such proceedings.
PART V — GENERAL PROVISIONS
Section 5.1 — Binding Nature
This Agreement shall be final and conclusive with respect to the specific matters determined herein, pursuant to IRC § 7121 and the regulations promulgated thereunder. The agreement, upon execution by all parties, shall be binding upon PPC, its successors and assigns (whether by merger, consolidation, reorganization, or otherwise), and upon the IRS, and shall not be subject to reopening, modification, or annulment except as provided by IRC § 7121(b) (i.e., upon a showing of fraud, malfeasance, or misrepresentation of a material fact).
Section 5.2 — Severability
If any provision of this Agreement, or the application thereof to any circumstance, is held invalid, illegal, or unenforceable by any court of competent jurisdiction or other governmental authority, such invalidity, illegality, or unenforceability shall not affect any other provision of this Agreement, and the remaining provisions shall continue in full force and effect. In such event, the parties shall negotiate in good faith to modify the invalid, illegal, or unenforceable provision to the extent necessary to render it valid, legal, and enforceable while preserving the original intent of the parties.
Section 5.3 — Entire Agreement
This Agreement, including Exhibits A and B attached hereto and incorporated herein by reference, constitutes the entire agreement between PPC and the IRS with respect to the specific matters determined herein for TY 2017, 2018, 2019, and 2020. No oral statements, representations, understandings, or prior written communications — whether made during the examination, the Appeals conference, or otherwise — shall modify, supplement, or supersede any provision of this Agreement. All prior negotiations, discussions, and correspondence between the parties with respect to the matters addressed herein are merged into and superseded by this Agreement.
Section 5.4 — Governing Law
This Agreement is made pursuant to, and shall be governed by and construed in accordance with, the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, and other applicable federal tax law. To the extent that any question of interpretation arises, such question shall be resolved by reference to the provisions of the Code, applicable regulations, and published guidance of the IRS.
Section 5.5 — Amendments
This Agreement may not be amended, modified, or supplemented except by a written instrument duly executed by both PPC (through an authorized officer or representative) and the IRS (through an authorized delegate of the Commissioner). No waiver of any provision of this Agreement shall be effective unless in writing and signed by the party granting such waiver.
Section 5.6 — Counterparts
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Execution and delivery of this Agreement by facsimile or electronic means (including PDF) shall be deemed valid and effective for all purposes.
PART VI — SIGNATURE BLOCKS
IN WITNESS WHEREOF, the undersigned have executed this Closing Agreement on Final Determination Covering Specific Matters as of the dates indicated below.
Section 6.1 — Taxpayer
PENTERRA PHARMACEUTICALS CORP.
By: ________
Name: Marcus Whitfield
Title: Vice President, Global Tax
Date: ________
Address: 2200 Independence Boulevard
Princeton Junction, NJ 08550 EIN: 22-3741856
Section 6.2 — Internal Revenue Service
INTERNAL REVENUE SERVICE — INDEPENDENT OFFICE OF APPEALS
By: ________
Name: Noreen Castañeda
Title: Appeals Officer
Date: ________
INTERNAL REVENUE SERVICE — COMMISSIONER'S DELEGATE
By: ________
Name: ________
Title: Area Director, IRS Independent Office of Appeals
(or other authorized delegate of the Commissioner pursuant to IRC § 7121 and Delegation Order 8-5)
Date: ________
Section 6.3 — Attestation of Authorized Representative
The undersigned, as authorized representative of Penterra Pharmaceuticals Corp. pursuant to IRS Form 2848 (Power of Attorney and Declaration of Representative) filed with the Internal Revenue Service on June 8, 2022, hereby attests that this Agreement has been reviewed and approved by the Taxpayer, and that the signatory identified in Section 6.1 above is duly authorized to execute this Agreement on behalf of PPC.
CALDERWOOD & HARKNESS LLP
By: ________
Name: Leonard Cross
Title: Partner, Tax Department
Date: ________
Calderwood & Harkness LLP 1735 Market Street, Suite 3100 Philadelphia, PA 19103 Telephone: (215) 864-2200
EXHIBIT A — SCHEDULE OF ADJUSTMENTS BY TAX YEAR
The following table sets forth the agreed adjustments to PPC's taxable income for each Tax Year covered by this Agreement, together with the applicable tax rates, additional tax computations, estimated interest, and penalty determinations:
Notes to Exhibit A:
1. The applicable corporate tax rate for TY 2017 is 35%, reflecting the rate in effect under IRC § 11 prior to the enactment of the Tax Cuts and Jobs Act of 2017 (Pub. L. 115-97). The applicable corporate tax rate for TY 2018, TY 2019, and TY 2020 is 21%, reflecting the rate in effect under IRC § 11 as amended by the Tax Cuts and Jobs Act.
2. The aggregate additional federal income tax of $11,564,000 represents the sum of the individual year computations set forth above. The parties will confirm the exact aggregate amount prior to finalization, taking into account any applicable tax rate nuances, credits, or other items that may affect the final computation.
3. Interest on underpayment shall be computed by the IRS at the applicable federal underpayment rate under IRC § 6621, compounded daily, from the original due date of each return (April 15 of the year following the close of each Tax Year, or such other date as applicable) to the date of payment. The estimated aggregate interest of approximately $2,840,000 is preliminary and subject to adjustment based on the actual date of payment.
4. The proposed penalty under IRC § 6662(e) of $15,977,000 has been abated in full pursuant to Section 3.4 of this Agreement. No penalty is assessed or payable with respect to any Tax Year covered by this Agreement.
EXHIBIT B — SUMMARY OF RESOLVED ISSUES