[sheet: Cover]

Field	Value
Document Title	Sensitivity Analysis — Settlement Ranges and Financial Impact
Matter	Penterra Pharmaceuticals Corp. — IRS Transfer Pricing Examination Defense
Matter Number	1018-00009
Prepared By	Garrett Simmons, Lead Associate, Tax Department
Reviewed By	Leonard Cross, Responsible Partner, Tax Department
Firm	Calderwood & Harkness LLP
Date Prepared	December 8, 2023
Purpose	Model potential settlement outcomes at Appeals for hazards-of-litigation assessment and client settlement authority discussions
Client	Penterra Pharmaceuticals Corp. (EIN: 22-3741856)
Taxpayer Address	2200 Independence Boulevard, Princeton Junction, NJ 08550
Tax Years at Issue	2017, 2018, 2019, 2020
IRS Exam Team ID	LB&I-NE-TP-2022-00641
NOPA Date	October 12, 2023
30-Day Letter Date	November 8, 2023
Protest Filing Date	December 22, 2023
Status	PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

[sheet: Proposed Adjustments Summary]

Issue / Category	TY 2017 ($)	TY 2018 ($)	TY 2019 ($)	TY 2020 ($)	Total All Years ($)	Notes
CSA Cost-Sharing Adjustment	48,730,000	57,610,000	62,850,000	65,820,000	235,010,000	IRS proposes increasing PBI cost-share % by 8–12 pp per year
PPC Position: PBI Cost-Share %	38.2%	39.6%	41.1%	42.7%	—	Based on reasonably anticipated benefit projections
IRS Proposed PBI Cost-Share %	48.2%	50.6%	52.3%	53.7%	—	IRS asserts U.S.-source value understated
Increase in Percentage Points	+10.0 pp	+11.0 pp	+11.2 pp	+11.0 pp	—
Total R&D Cost Pool	487,300,000	523,800,000	561,200,000	598,400,000	2,170,700,000	Qualified R&D costs under CSA
Additional CSA Payment to PPC	48,730,000	57,618,000	62,854,400	65,824,000	235,026,400	pp increase × R&D cost pool (rounded to NOPA figures)
Royalty Rate Adjustment	52,949,000	49,549,500	44,967,000	40,566,500	188,032,000	IRS proposes increasing legacy IP royalty from 4.5% to 11.0%
PPC Position: Royalty Rate	4.5%	4.5%	4.5%	4.5%	—	CUT median 4.4%; IQR 3.1%–6.8% (14 comparables)
IRS Proposed Royalty Rate	11.0%	11.0%	11.0%	11.0%	—	Based on IRS-selected CUTs
Rate Differential	6.5%	6.5%	6.5%	6.5%	—
Legacy Net Sales (Non-Americas)	814,600,000	762,300,000	691,800,000	624,100,000	2,892,800,000	Declining product lifecycle
Additional Royalty to PPC	52,949,000	49,549,500	44,967,000	40,566,500	188,032,000	Rate diff × legacy net sales
Gross Proposed Adjustments	101,679,000	107,159,500	107,817,000	106,386,500	423,042,000	CSA + Royalty subtotals
Less: Correlative Offset	-10,662,500	-10,662,500	-10,662,500	-10,662,500	-42,650,000	Allowed by exam to avoid double-counting between CSA and royalty
Net Proposed Adjustment	91,017,500	96,497,500	97,157,500	95,727,500	380,400,000	Gross less correlative offset (rounded per NOPA)
Applicable Federal Tax Rate	35% / 21%	21%	21%	21%	—	TY 2017: blended 35%/21% due to TCJA (effective 1/1/2018); TY 2018–2020: 21%
Proposed Penalty (IRC § 6662(e))	—	—	—	—	15,977,000	$380.4M × 21% × 20% = ~$15.98M (substantial valuation misstatement)

[sheet: Settlement Scenarios]

Metric	Full Adjustment (100%)	Scenario A: 5%	Scenario B: 10%	Scenario C: 12.5%	Scenario D: 15%	Scenario E: 20%	Scenario F: 25%
Settlement Percentage	100%	5%	10%	12.5%	15%	20%	25%
Total Adjustment ($)	380,400,000	19,020,000	38,040,000	47,550,000	57,060,000	76,080,000	95,100,000

Estimated Year-by-Year Allocation:

TY 2017 Adjustment	91,017,500	4,550,875	9,101,750	11,377,188	13,652,625	18,203,500	22,754,375
TY 2018 Adjustment	96,497,500	4,824,875	9,649,750	12,062,188	14,474,625	19,299,500	24,124,375
TY 2019 Adjustment	97,157,500	4,857,875	9,715,750	12,144,688	14,573,625	19,431,500	24,289,375
TY 2020 Adjustment	95,727,500	4,786,375	9,572,750	11,965,938	14,359,125	19,145,500	23,931,875

Federal Tax Liability:

TY 2017 Tax (blended ~21%)	19,113,675	955,684	1,911,367	2,389,209	2,867,051	3,822,735	4,778,419
TY 2018 Tax (21%)	20,264,475	1,013,224	2,026,448	2,533,059	3,039,671	4,052,895	5,066,119
TY 2019 Tax (21%)	20,403,075	1,020,154	2,040,308	2,550,384	3,060,461	4,080,615	5,100,769
TY 2020 Tax (21%)	20,102,775	1,005,139	2,010,278	2,512,847	3,015,416	4,020,555	5,025,694
Total Tax Due	79,884,000	3,994,200	7,988,400	9,985,500	11,982,600	15,976,800	19,971,000

Estimated Underpayment Interest:

TY 2017 Interest (est. ~6 yrs)	7,160,000	358,000	716,000	895,000	1,074,000	1,432,000	1,790,000
TY 2018 Interest (est. ~5 yrs)	6,600,000	330,000	660,000	825,000	990,000	1,320,000	1,650,000
TY 2019 Interest (est. ~4 yrs)	5,200,000	260,000	520,000	650,000	780,000	1,040,000	1,300,000
TY 2020 Interest (est. ~3 yrs)	3,805,000	190,000	381,000	470,000	571,000	761,000	951,000
Total Estimated Interest	22,765,000	1,138,000	2,277,000	2,840,000	3,415,000	4,553,000	5,691,000

Penalty Analysis:

IRC § 6662(e) Penalty (20% of tax)	15,976,800	798,840	1,597,680	1,997,100	2,396,520	3,195,360	3,994,200
Penalty if Abated (reasonable cause)	0	0	0	0	0	0	0
Assumed Penalty Outcome	15,976,800	0	0	0	0	0	0

Total Cash Cost to PPC:

Tax + Interest (penalty abated)	102,649,000	5,132,200	10,265,400	12,825,500	15,397,600	20,529,800	25,662,000
Tax + Interest + Penalty (if assessed)	118,625,800	5,931,040	11,863,080	14,822,600	17,794,120	23,725,160	29,656,200

Professional Fees (estimated):

Calderwood & Harkness LLP Legal Fees	5,837,420	5,837,420	5,837,420	5,837,420	5,837,420	5,837,420	5,837,420
Whitmore Valuation Group Expert Fees	2,146,800	2,146,800	2,146,800	2,146,800	2,146,800	2,146,800	2,146,800
Thornbury & Keogh Irish Coordination Fees	341,200	341,200	341,200	341,200	341,200	341,200	341,200
Total Professional Fees	8,325,420	8,325,420	8,325,420	8,325,420	8,325,420	8,325,420	8,325,420
Total All-In Cost to PPC (penalty abated)	110,974,420	13,457,620	18,590,820	21,150,920	23,723,020	28,855,220	33,987,420
Total All-In Cost to PPC (penalty assessed)	126,951,220	14,256,460	20,188,500	23,148,020	26,119,540	32,050,580	37,981,620

Savings vs. Full IRS Position:

Savings on Tax + Interest (penalty abated)	0	97,516,800	92,383,600	89,823,500	87,251,400	82,119,200	76,987,000
Savings as % of Full IRS Position	0.0%	95.0%	90.0%	87.5%	85.0%	80.0%	75.0%
Savings on Total All-In Cost (penalty abated)	0	97,516,800	92,383,600	89,823,500	87,251,400	82,119,200	76,987,000

[sheet: Year-by-Year Detail]

Tax Year	Net Proposed Adj — IRS ($)	PBI Cost-Share % (PPC Position)	PBI Cost-Share % (IRS Position)	R&D Cost Pool ($)	CSA Adj Component ($)	Legacy Net Sales ($)	Royalty Rate (PPC)	Royalty Rate (IRS)	Royalty Adj Component ($)	Correlative Offset ($)	Net Proposed Adj ($)	Settlement at 5% ($)	Settlement at 10% ($)	Settlement at 12.5% ($)	Settlement at 15% ($)	Settlement at 20% ($)	Settlement at 25% ($)	Applicable Tax Rate	Notes
2017	91,017,500	38.2%	48.2%	487,300,000	48,730,000	814,600,000	4.5%	11.0%	52,949,000	-10,662,500	91,017,500	4,550,875	9,101,750	11,377,188	13,652,625	18,203,500	22,754,375	35%/21% blended (TCJA effective 1/1/2018)	Pre-TCJA rate applies to portion of TY 2017
2018	96,497,500	39.6%	50.6%	523,800,000	57,610,000	762,300,000	4.5%	11.0%	49,549,500	-10,662,500	96,497,500	4,824,875	9,649,750	12,062,188	14,474,625	19,299,500	24,124,375	21%	Post-TCJA
2019	97,157,500	41.1%	52.3%	561,200,000	62,854,400	691,800,000	4.5%	11.0%	44,967,000	-10,662,500	97,157,500	4,857,875	9,715,750	12,144,688	14,573,625	19,431,500	24,289,375	21%	Post-TCJA
2020	95,727,500	42.7%	53.7%	598,400,000	65,824,000	624,100,000	4.5%	11.0%	40,566,500	-10,662,500	95,727,500	4,786,375	9,572,750	11,965,938	14,359,125	19,145,500	23,931,875	21%	Post-TCJA
TOTAL	380,400,000	—	—	2,170,700,000	235,018,400	2,892,800,000	—	—	188,032,000	-42,650,000	380,400,000	19,020,000	38,040,000	47,550,000	57,060,000	76,080,000	95,100,000	—

[sheet: Interest Computation]

Tax Year	Original Due Date	Estimated Payment Date	Approximate Interest Period	Applicable Federal Rate (avg. quarterly rate)	Tax at 5% Settlement ($)	Interest at 5% ($)	Tax at 10% Settlement ($)	Interest at 10% ($)	Tax at 12.5% Settlement ($)	Interest at 12.5% ($)	Tax at 15% Settlement ($)	Interest at 15% ($)	Tax at 20% Settlement ($)	Interest at 20% ($)	Tax at 25% Settlement ($)	Interest at 25% ($)
2017	April 15, 2018	April 30, 2024	~6 years	~5.0% avg. compounded	955,684	358,000	1,911,367	716,000	2,389,209	895,000	2,867,051	1,074,000	3,822,735	1,432,000	4,778,419	1,790,000
2018	April 15, 2019	April 30, 2024	~5 years	~5.0% avg. compounded	1,013,224	330,000	2,026,448	660,000	2,533,059	825,000	3,039,671	990,000	4,052,895	1,320,000	5,066,119	1,650,000
2019	April 15, 2020	April 30, 2024	~4 years	~5.2% avg. compounded	1,020,154	260,000	2,040,308	520,000	2,550,384	650,000	3,060,461	780,000	4,080,615	1,040,000	5,100,769	1,300,000
2020	April 15, 2021	April 30, 2024	~3 years	~5.5% avg. compounded	1,005,139	190,000	2,010,278	381,000	2,512,847	470,000	3,015,416	571,000	4,020,555	761,000	5,025,694	951,000
TOTAL	—	—	—	—	3,994,200	1,138,000	7,988,400	2,277,000	9,985,500	2,840,000	11,982,600	3,415,000	15,976,800	4,553,000	19,971,000	5,691,000

[sheet: Penalty Analysis]

Metric	Full Adjustment	5% Settlement	10% Settlement	12.5% Settlement	15% Settlement	20% Settlement	25% Settlement
Net Adjustment ($)	380,400,000	19,020,000	38,040,000	47,550,000	57,060,000	76,080,000	95,100,000
Tax on Adjustment (21%)	79,884,000	3,994,200	7,988,400	9,985,500	11,982,600	15,976,800	19,971,000
IRC § 6662(e) Substantial Valuation Misstatement Penalty (20%)	15,976,800	798,840	1,597,680	1,997,100	2,396,520	3,195,360	3,994,200
IRC § 6662(h) Gross Valuation Misstatement Penalty (40%) — Reserved, Not Asserted	31,953,600	N/A	N/A	N/A	N/A	N/A	N/A

Reasonable Cause Defense Factors:

Contemporaneous TP documentation (Crestfield & Associates)	Yes — all 4 years	—	—	—	—	—	—
Documentation meets IRC § 6662(e)(3)(B) standards	Yes	—	—	—	—	—	—
Independent economic analysis (Whitmore Valuation Group)	Yes — CUT, CPM/TNMM, DCF	—	—	—	—	—	—
PPC's 4.5% royalty rate within CUT IQR (3.1%–6.8%)	Yes — median 4.4%	—	—	—	—	—	—
PPC's PCT payment ($312M) within DCF range ($278M–$361M)	Yes	—	—	—	—	—	—
PPC WACC of 9.8% supported vs. IRS 7.2%	Yes	—	—	—	—	—	—
Good-faith reliance on professional advisors	Yes	—	—	—	—	—	—
Assessment: Penalty Abatement Likelihood	High	High	High	High	High	High	High
Assumed Penalty in Settlement	0	0	0	0	0	0	0
Penalty Savings vs. Full Assessment	15,976,800	798,840	1,597,680	1,997,100	2,396,520	3,195,360	3,994,200
Net Cost Reduction from Penalty Abatement (all scenarios)	—	Full penalty abated	Full penalty abated	Full penalty abated	Full penalty abated	Full penalty abated	Full penalty abated

[sheet: Cover]
Field | Value
Document Title | Sensitivity Analysis — Settlement Ranges and Financial Impact
Matter | Penterra Pharmaceuticals Corp. — IRS Transfer Pricing Examination Defense
Matter Number | 1018-00009
Prepared By | Garrett Simmons, Lead Associate, Tax Department
Reviewed By | Leonard Cross, Responsible Partner, Tax Department
Firm | Calderwood & Harkness LLP
Date Prepared | December 8, 2023
Purpose | Model potential settlement outcomes at Appeals for hazards-of-litigation assessment and client settlement authority discussions
Client | Penterra Pharmaceuticals Corp. (EIN: 22-3741856)
Taxpayer Address | 2200 Independence Boulevard, Princeton Junction, NJ 08550
Tax Years at Issue | 2017, 2018, 2019, 2020
IRS Exam Team ID | LB&I-NE-TP-2022-00641
NOPA Date | October 12, 2023
30-Day Letter Date | November 8, 2023
Protest Filing Date | December 22, 2023
Status | PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
[sheet: Proposed Adjustments Summary]
Issue / Category | TY 2017 ($) | TY 2018 ($) | TY 2019 ($) | TY 2020 ($) | Total All Years ($) | Notes
CSA Cost-Sharing Adjustment | 48,730,000 | 57,610,000 | 62,850,000 | 65,820,000 | 235,010,000 | IRS proposes increasing PBI cost-share % by 8–12 pp per year
  PPC Position: PBI Cost-Share % | 38.2% | 39.6% | 41.1% | 42.7% | — | Based on reasonably anticipated benefit projections
  IRS Proposed PBI Cost-Share % | 48.2% | 50.6% | 52.3% | 53.7% | — | IRS asserts U.S.-source value understated
  Increase in Percentage Points | +10.0 pp | +11.0 pp | +11.2 pp | +11.0 pp | —
  Total R&D Cost Pool | 487,300,000 | 523,800,000 | 561,200,000 | 598,400,000 | 2,170,700,000 | Qualified R&D costs under CSA
  Additional CSA Payment to PPC | 48,730,000 | 57,618,000 | 62,854,400 | 65,824,000 | 235,026,400 | pp increase × R&D cost pool (rounded to NOPA figures)
Royalty Rate Adjustment | 52,949,000 | 49,549,500 | 44,967,000 | 40,566,500 | 188,032,000 | IRS proposes increasing legacy IP royalty from 4.5% to 11.0%
  PPC Position: Royalty Rate | 4.5% | 4.5% | 4.5% | 4.5% | — | CUT median 4.4%; IQR 3.1%–6.8% (14 comparables)
  IRS Proposed Royalty Rate | 11.0% | 11.0% | 11.0% | 11.0% | — | Based on IRS-selected CUTs
  Rate Differential | 6.5% | 6.5% | 6.5% | 6.5% | —
  Legacy Net Sales (Non-Americas) | 814,600,000 | 762,300,000 | 691,800,000 | 624,100,000 | 2,892,800,000 | Declining product lifecycle
  Additional Royalty to PPC | 52,949,000 | 49,549,500 | 44,967,000 | 40,566,500 | 188,032,000 | Rate diff × legacy net sales
Gross Proposed Adjustments | 101,679,000 | 107,159,500 | 107,817,000 | 106,386,500 | 423,042,000 | CSA + Royalty subtotals
Less: Correlative Offset | -10,662,500 | -10,662,500 | -10,662,500 | -10,662,500 | -42,650,000 | Allowed by exam to avoid double-counting between CSA and royalty
Net Proposed Adjustment | 91,017,500 | 96,497,500 | 97,157,500 | 95,727,500 | 380,400,000 | Gross less correlative offset (rounded per NOPA)
Applicable Federal Tax Rate | 35% / 21% | 21% | 21% | 21% | — | TY 2017: blended 35%/21% due to TCJA (effective 1/1/2018); TY 2018–2020: 21%
Proposed Penalty (IRC § 6662(e)) | — | — | — | — | 15,977,000 | $380.4M × 21% × 20% = ~$15.98M (substantial valuation misstatement)
[sheet: Settlement Scenarios]
Metric | Full Adjustment (100%) | Scenario A: 5% | Scenario B: 10% | Scenario C: 12.5% | Scenario D: 15% | Scenario E: 20% | Scenario F: 25%
Settlement Percentage | 100% | 5% | 10% | 12.5% | 15% | 20% | 25%
Total Adjustment ($) | 380,400,000 | 19,020,000 | 38,040,000 | 47,550,000 | 57,060,000 | 76,080,000 | 95,100,000
Estimated Year-by-Year Allocation:
  TY 2017 Adjustment | 91,017,500 | 4,550,875 | 9,101,750 | 11,377,188 | 13,652,625 | 18,203,500 | 22,754,375
  TY 2018 Adjustment | 96,497,500 | 4,824,875 | 9,649,750 | 12,062,188 | 14,474,625 | 19,299,500 | 24,124,375
  TY 2019 Adjustment | 97,157,500 | 4,857,875 | 9,715,750 | 12,144,688 | 14,573,625 | 19,431,500 | 24,289,375
  TY 2020 Adjustment | 95,727,500 | 4,786,375 | 9,572,750 | 11,965,938 | 14,359,125 | 19,145,500 | 23,931,875
Federal Tax Liability:
  TY 2017 Tax (blended ~21%) | 19,113,675 | 955,684 | 1,911,367 | 2,389,209 | 2,867,051 | 3,822,735 | 4,778,419
  TY 2018 Tax (21%) | 20,264,475 | 1,013,224 | 2,026,448 | 2,533,059 | 3,039,671 | 4,052,895 | 5,066,119
  TY 2019 Tax (21%) | 20,403,075 | 1,020,154 | 2,040,308 | 2,550,384 | 3,060,461 | 4,080,615 | 5,100,769
  TY 2020 Tax (21%) | 20,102,775 | 1,005,139 | 2,010,278 | 2,512,847 | 3,015,416 | 4,020,555 | 5,025,694
  Total Tax Due | 79,884,000 | 3,994,200 | 7,988,400 | 9,985,500 | 11,982,600 | 15,976,800 | 19,971,000
Estimated Underpayment Interest:
  TY 2017 Interest (est. ~6 yrs) | 7,160,000 | 358,000 | 716,000 | 895,000 | 1,074,000 | 1,432,000 | 1,790,000
  TY 2018 Interest (est. ~5 yrs) | 6,600,000 | 330,000 | 660,000 | 825,000 | 990,000 | 1,320,000 | 1,650,000
  TY 2019 Interest (est. ~4 yrs) | 5,200,000 | 260,000 | 520,000 | 650,000 | 780,000 | 1,040,000 | 1,300,000
  TY 2020 Interest (est. ~3 yrs) | 3,805,000 | 190,000 | 381,000 | 470,000 | 571,000 | 761,000 | 951,000
  Total Estimated Interest | 22,765,000 | 1,138,000 | 2,277,000 | 2,840,000 | 3,415,000 | 4,553,000 | 5,691,000
Penalty Analysis:
  IRC § 6662(e) Penalty (20% of tax) | 15,976,800 | 798,840 | 1,597,680 | 1,997,100 | 2,396,520 | 3,195,360 | 3,994,200
  Penalty if Abated (reasonable cause) | 0 | 0 | 0 | 0 | 0 | 0 | 0
  Assumed Penalty Outcome | 15,976,800 | 0 | 0 | 0 | 0 | 0 | 0
Total Cash Cost to PPC:
  Tax + Interest (penalty abated) | 102,649,000 | 5,132,200 | 10,265,400 | 12,825,500 | 15,397,600 | 20,529,800 | 25,662,000
  Tax + Interest + Penalty (if assessed) | 118,625,800 | 5,931,040 | 11,863,080 | 14,822,600 | 17,794,120 | 23,725,160 | 29,656,200
Professional Fees (estimated):
  Calderwood & Harkness LLP Legal Fees | 5,837,420 | 5,837,420 | 5,837,420 | 5,837,420 | 5,837,420 | 5,837,420 | 5,837,420
  Whitmore Valuation Group Expert Fees | 2,146,800 | 2,146,800 | 2,146,800 | 2,146,800 | 2,146,800 | 2,146,800 | 2,146,800
  Thornbury & Keogh Irish Coordination Fees | 341,200 | 341,200 | 341,200 | 341,200 | 341,200 | 341,200 | 341,200
  Total Professional Fees | 8,325,420 | 8,325,420 | 8,325,420 | 8,325,420 | 8,325,420 | 8,325,420 | 8,325,420
Total All-In Cost to PPC (penalty abated) | 110,974,420 | 13,457,620 | 18,590,820 | 21,150,920 | 23,723,020 | 28,855,220 | 33,987,420
Total All-In Cost to PPC (penalty assessed) | 126,951,220 | 14,256,460 | 20,188,500 | 23,148,020 | 26,119,540 | 32,050,580 | 37,981,620
Savings vs. Full IRS Position:
  Savings on Tax + Interest (penalty abated) | 0 | 97,516,800 | 92,383,600 | 89,823,500 | 87,251,400 | 82,119,200 | 76,987,000
  Savings as % of Full IRS Position | 0.0% | 95.0% | 90.0% | 87.5% | 85.0% | 80.0% | 75.0%
  Savings on Total All-In Cost (penalty abated) | 0 | 97,516,800 | 92,383,600 | 89,823,500 | 87,251,400 | 82,119,200 | 76,987,000
[sheet: Year-by-Year Detail]
Tax Year | Net Proposed Adj — IRS ($) | PBI Cost-Share % (PPC Position) | PBI Cost-Share % (IRS Position) | R&D Cost Pool ($) | CSA Adj Component ($) | Legacy Net Sales ($) | Royalty Rate (PPC) | Royalty Rate (IRS) | Royalty Adj Component ($) | Correlative Offset ($) | Net Proposed Adj ($) | Settlement at 5% ($) | Settlement at 10% ($) | Settlement at 12.5% ($) | Settlement at 15% ($) | Settlement at 20% ($) | Settlement at 25% ($) | Applicable Tax Rate | Notes
2017 | 91,017,500 | 38.2% | 48.2% | 487,300,000 | 48,730,000 | 814,600,000 | 4.5% | 11.0% | 52,949,000 | -10,662,500 | 91,017,500 | 4,550,875 | 9,101,750 | 11,377,188 | 13,652,625 | 18,203,500 | 22,754,375 | 35%/21% blended (TCJA effective 1/1/2018) | Pre-TCJA rate applies to portion of TY 2017
2018 | 96,497,500 | 39.6% | 50.6% | 523,800,000 | 57,610,000 | 762,300,000 | 4.5% | 11.0% | 49,549,500 | -10,662,500 | 96,497,500 | 4,824,875 | 9,649,750 | 12,062,188 | 14,474,625 | 19,299,500 | 24,124,375 | 21% | Post-TCJA
2019 | 97,157,500 | 41.1% | 52.3% | 561,200,000 | 62,854,400 | 691,800,000 | 4.5% | 11.0% | 44,967,000 | -10,662,500 | 97,157,500 | 4,857,875 | 9,715,750 | 12,144,688 | 14,573,625 | 19,431,500 | 24,289,375 | 21% | Post-TCJA
2020 | 95,727,500 | 42.7% | 53.7% | 598,400,000 | 65,824,000 | 624,100,000 | 4.5% | 11.0% | 40,566,500 | -10,662,500 | 95,727,500 | 4,786,375 | 9,572,750 | 11,965,938 | 14,359,125 | 19,145,500 | 23,931,875 | 21% | Post-TCJA
TOTAL | 380,400,000 | — | — | 2,170,700,000 | 235,018,400 | 2,892,800,000 | — | — | 188,032,000 | -42,650,000 | 380,400,000 | 19,020,000 | 38,040,000 | 47,550,000 | 57,060,000 | 76,080,000 | 95,100,000 | —
[sheet: Interest Computation]
Tax Year | Original Due Date | Estimated Payment Date | Approximate Interest Period | Applicable Federal Rate (avg. quarterly rate) | Tax at 5% Settlement ($) | Interest at 5% ($) | Tax at 10% Settlement ($) | Interest at 10% ($) | Tax at 12.5% Settlement ($) | Interest at 12.5% ($) | Tax at 15% Settlement ($) | Interest at 15% ($) | Tax at 20% Settlement ($) | Interest at 20% ($) | Tax at 25% Settlement ($) | Interest at 25% ($)
2017 | April 15, 2018 | April 30, 2024 | ~6 years | ~5.0% avg. compounded | 955,684 | 358,000 | 1,911,367 | 716,000 | 2,389,209 | 895,000 | 2,867,051 | 1,074,000 | 3,822,735 | 1,432,000 | 4,778,419 | 1,790,000
2018 | April 15, 2019 | April 30, 2024 | ~5 years | ~5.0% avg. compounded | 1,013,224 | 330,000 | 2,026,448 | 660,000 | 2,533,059 | 825,000 | 3,039,671 | 990,000 | 4,052,895 | 1,320,000 | 5,066,119 | 1,650,000
2019 | April 15, 2020 | April 30, 2024 | ~4 years | ~5.2% avg. compounded | 1,020,154 | 260,000 | 2,040,308 | 520,000 | 2,550,384 | 650,000 | 3,060,461 | 780,000 | 4,080,615 | 1,040,000 | 5,100,769 | 1,300,000
2020 | April 15, 2021 | April 30, 2024 | ~3 years | ~5.5% avg. compounded | 1,005,139 | 190,000 | 2,010,278 | 381,000 | 2,512,847 | 470,000 | 3,015,416 | 571,000 | 4,020,555 | 761,000 | 5,025,694 | 951,000
TOTAL | — | — | — | — | 3,994,200 | 1,138,000 | 7,988,400 | 2,277,000 | 9,985,500 | 2,840,000 | 11,982,600 | 3,415,000 | 15,976,800 | 4,553,000 | 19,971,000 | 5,691,000
[sheet: Penalty Analysis]
Metric | Full Adjustment | 5% Settlement | 10% Settlement | 12.5% Settlement | 15% Settlement | 20% Settlement | 25% Settlement
Net Adjustment ($) | 380,400,000 | 19,020,000 | 38,040,000 | 47,550,000 | 57,060,000 | 76,080,000 | 95,100,000
Tax on Adjustment (21%) | 79,884,000 | 3,994,200 | 7,988,400 | 9,985,500 | 11,982,600 | 15,976,800 | 19,971,000
IRC § 6662(e) Substantial Valuation Misstatement Penalty (20%) | 15,976,800 | 798,840 | 1,597,680 | 1,997,100 | 2,396,520 | 3,195,360 | 3,994,200
IRC § 6662(h) Gross Valuation Misstatement Penalty (40%) — Reserved, Not Asserted | 31,953,600 | N/A | N/A | N/A | N/A | N/A | N/A
Reasonable Cause Defense Factors:
  Contemporaneous TP documentation (Crestfield & Associates) | Yes — all 4 years | — | — | — | — | — | —
  Documentation meets IRC § 6662(e)(3)(B) standards | Yes | — | — | — | — | — | —
  Independent economic analysis (Whitmore Valuation Group) | Yes — CUT, CPM/TNMM, DCF | — | — | — | — | — | —
  PPC's 4.5% royalty rate within CUT IQR (3.1%–6.8%) | Yes — median 4.4% | — | — | — | — | — | —
  PPC's PCT payment ($312M) within DCF range ($278M–$361M) | Yes | — | — | — | — | — | —
  PPC WACC of 9.8% supported vs. IRS 7.2% | Yes | — | — | — | — | — | —
  Good-faith reliance on professional advisors | Yes | — | — | — | — | — | —
Assessment: Penalty Abatement Likelihood | High | High | High | High | High | High | High
Assumed Penalty in Settlement | 0 | 0 | 0 | 0 | 0 | 0 | 0
Penalty Savings vs. Full Assessment | 15,976,800 | 798,840 | 1,597,680 | 1,997,100 | 2,396,520 | 3,195,360 | 3,994,200
Net Cost Reduction from Penalty Abatement (all scenarios) | — | Full penalty abated | Full penalty abated | Full penalty abated | Full penalty abated | Full penalty abated | Full penalty abated

[sheet: Cover]

Record

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