1018-00009 · Client 1018 · Examination Proceedings

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Form 872

(Rev. September 2017)

Consent to Extend the Time to Assess Tax

Department of the Treasury — Internal Revenue Service

Under Section 6501(c)(4) of the Internal Revenue Code

OMB No. 1545-0024. For IRS Use Only. This form is used to extend the statutory period for assessment of federal income tax. Paperwork Reduction Act Notice: We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws. The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is 5 minutes. If you have comments concerning the accuracy of this time estimate or suggestions for making this form simpler, we would be happy to hear from you.

Part I — Taxpayer Identification

Taxpayer Name (as shown on return):

Penterra Pharmaceuticals Corp.

Number, Street, and Room or Suite No. (or P.O. Box number if mail is not delivered to street address):

2200 Independence Boulevard

City or Town, State, and ZIP Code:

Princeton Junction, NJ 08550

Employer Identification Number (EIN):

22-3741856

Taxpayer Status:

Publicly traded Delaware corporation (Nasdaq: PPCA)

Form Number of Return:

Form 1120 — U.S. Corporation Income Tax Return

Tax Year Ended:

December 31, 2018

Internal Revenue Service Center Where Return Was Filed:

Ogden, UT (per original electronic filing)

Part II — Consent Language

Statement of Consent

Penterra Pharmaceuticals Corp. (EIN: 22-3741856), the taxpayer identified above, and the Commissioner of Internal Revenue hereby consent and agree to the following:

Extension of Assessment Period

The amount of any Federal income tax due on the return(s) identified above for the period ended December 31, 2018, including any increases in the above tax and any penalties and additions to tax attributable thereto, may be assessed at any time on or before:

December 31, 2024

This consent establishes the date on or before which the Internal Revenue Service may assess any Federal income tax (including any applicable penalties, additions to tax, and interest) due for the tax period specified above. Without this consent, the assessment of any additional tax would be limited to the statutory period prescribed by Section 6501(a) of the Internal Revenue Code, which provides a three-year period of limitations from the date the return was filed. The original Form 1120 for the tax year ended December 31, 2018, was filed electronically on or about October 15, 2019, pursuant to an automatic extension of time to file under Section 6081 of the Internal Revenue Code. Accordingly, absent this consent, the normal three-year period of limitations under Section 6501(a) would have expired on or about October 15, 2022.

This extension is necessary because the Internal Revenue Service, Large Business & International Division, opened an examination of the taxpayer's Form 1120 for the tax year ended December 31, 2018, on May 16, 2022, under Exam Team ID LB&I-NE-TP-2022-00641. The examination, including the issuance of Information Document Requests (IDRs), the issuance of a Notice of Proposed Adjustment (NOPA), the filing of a Protest, and anticipated proceedings before the IRS Office of Appeals, requires time beyond the normal assessment period. This consent ensures that the Internal Revenue Service retains the ability to assess any additional tax due as determined through those proceedings.

This consent covers the assessment of tax, penalties, additions to tax, and interest arising from the examination of the taxpayer's transfer pricing positions under Section 482 of the Internal Revenue Code for the tax year ended December 31, 2018, and all other items of income, deductions, credits, or other amounts reported on or related to the taxpayer's Form 1120 for that tax year.

Preservation of Rights

This consent to extend the time for assessment does not limit the right of the taxpayer to file a claim for credit or refund under Section 6511 of the Internal Revenue Code, nor does it extend the period of time prescribed by Section 6511 within which such a claim may be filed. The filing of a claim for credit or refund by the taxpayer during the extended assessment period shall be governed by Section 6511 and the regulations thereunder.

This consent is effective on the date it is signed by the taxpayer. The taxpayer may, at any time thereafter, terminate this consent by sending written notice of termination, by certified or registered mail, to the Internal Revenue Service office considering the taxpayer's return. If the taxpayer exercises this right, the assessment period will expire on the date that is 90 days after the date the notice of termination is received by the Internal Revenue Service, or on the date specified in this consent as the expiration date of the extended assessment period, whichever is earlier.

The making of this consent does not deprive the taxpayer of any appeal rights to which the taxpayer would otherwise be entitled. The consent does not extend the time for the collection of any tax that has been assessed, and it does not affect the running of the period of limitations on collection as prescribed by Section 6502 of the Internal Revenue Code.

Reference to Related Examination

This consent relates to the Internal Revenue Service Large Business & International Division examination of Penterra Pharmaceuticals Corp.'s transfer pricing methodology for intercompany transactions with Penterra Biopharma International DAC ("PBI"), an Irish designated activity company and wholly owned subsidiary of the taxpayer. PBI is held through Penterra Holdings Luxembourg S.à r.l., a Luxembourg private limited liability company that is treated as a disregarded entity for U.S. federal income tax purposes under Treasury Regulation § 301.7701-3.

The examination addresses the following intercompany arrangements and transactions between Penterra Pharmaceuticals Corp. ("PPC") and PBI:

(a) The qualified cost-sharing arrangement ("CSA") within the meaning of Treasury Regulation § 1.482-7, effective July 1, 2012, pursuant to which PPC and PBI share the costs and risks of developing intangible property relating to the taxpayer's pharmaceutical product portfolio;

(b) The platform contribution transaction ("PCT") within the meaning of Treasury Regulation § 1.482-7(c), entered into in connection with the formation of the CSA, under which PBI was required to make payments to PPC reflecting the value of PPC's pre-existing intangible property and other resources, capabilities, and rights made available to PBI in connection with PBI's participation in the CSA; and

(c) The legacy intellectual property royalty arrangement between PPC and PBI, pursuant to which PBI makes royalty payments to PPC for the right to use, manufacture, and sell products embodying PPC's pre-CSA intangible property in territories outside the United States.

The IRS examination team assigned to this matter is as follows:

Exam Team: IRS Large Business & International Division, Northeast Transfer Pricing Practice

Team ID: LB&I-NE-TP-2022-00641

Supervisory Revenue Agent (Team Manager): Gerald Meskill

Lead Revenue Agent: Patricia Dunleavy

Part III — Taxpayer Signature block

The taxpayer identified above hereby consents to the extension of the period of limitations for assessment as set forth in Part II of this form. By signing below, the undersigned represents and warrants that he or she is duly authorized to execute this consent on behalf of the taxpayer.

PENTERRA PHARMACEUTICALS CORP. EIN: 22-3741856

By: ________

Name: Marcus Whitfield

Title: Vice President, Global Tax

Date: September 14, 2022

Taxpayer's Authorized Representative:

Calderwood & Harkness LLP 125 Broad Street New York, NY 10004

Responsible Partner: Leonard Cross C&H Matter Number: 1018-00009

Authorization: IRS Form 2848 (Power of Attorney and Declaration of Representative), filed June 8, 2022, authorizing the following individuals to represent Penterra Pharmaceuticals Corp. before the Internal Revenue Service in connection with the examination of Form 1120 for tax years ended December 31, 2017 through December 31, 2020:

• Leonard Cross, Partner, Calderwood & Harkness LLP

• Sylvia Hartwell, Partner, Calderwood & Harkness LLP

• Garrett Simmons, Counsel, Calderwood & Harkness LLP

• Leila Nazari, Associate, Calderwood & Harkness LLP

Part IV — Internal Revenue Service Signature block

The Internal Revenue Service hereby consents to the extension of the period of limitations for assessment as set forth in Part II of this form.

INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY

By: ________

Name: Gerald Meskill

Title: Supervisory Revenue Agent / Team Manager

Office: IRS Large Business & International Division Northeast Transfer Pricing Practice

Date: September 19, 2022

Part V — Additional Information / Instructions

Instructions for Filing

The following standard instructions apply to this Form 872:

1. Retention of Copies. The taxpayer should keep a copy of this fully executed consent for its records. The Internal Revenue Service will provide a signed copy to the taxpayer (or the taxpayer's authorized representative, if applicable) after execution by both parties.

2. Change of Address. If the taxpayer's address changes after the date this consent is executed, the taxpayer should promptly send written notice of the new address to the Internal Revenue Service office that is considering the taxpayer's return. Failure to provide timely notice of an address change may result in correspondence being sent to the address shown on this form.

3. Successors and Assigns. This consent is binding upon the taxpayer, its successors, and assigns. Any corporation that acquires the taxpayer or its assets in a transaction described in Section 381 of the Internal Revenue Code, or any other successor to the taxpayer's tax attributes, shall be bound by this consent to the same extent as the taxpayer.

4. Multiple Consents. If more than one consent to extend the period of limitations has been executed for the same tax period, the consent with the latest expiration date controls.

5. Effect on Statute of Limitations. This consent extends only the period of limitations for assessment. It does not extend the period of limitations on collection or the time for filing a claim for credit or refund.

Filing and Retention Notes

• One fully executed original to be retained in Calderwood & Harkness LLP matter file (Matter No. 1018-00009).

• One fully executed copy provided to Marcus Whitfield, Vice President, Global Tax, Penterra Pharmaceuticals Corp., for PPC's tax department records.

• One fully executed copy retained by IRS Large Business & International Division, Northeast Transfer Pricing Practice, in the examination file for Exam Team ID LB&I-NE-TP-2022-00641.

Note Regarding Companion Form 872 for TY 2017: This Form 872 is one of two consents executed in connection with the IRS examination under Team ID LB&I-NE-TP-2022-00641. A separate Form 872 was also executed for the tax year ended December 31, 2017, extending the assessment period for that tax year through December 31, 2024 (maintained in the Calderwood & Harkness matter file as "consent-to-extend-statute-form-872.docx"). The terms and conditions of the TY 2017 consent are substantially identical to those set forth herein.

Note Regarding TY 2019 and TY 2020: The tax years ended December 31, 2019 and December 31, 2020 did not require the execution of consent-to-extend forms because the normal three-year assessment periods under Section 6501(a) of the Internal Revenue Code for those tax years had not yet expired at the time of the conclusion of the examination and the execution of the Form 906 Closing Agreement. Specifically, the Form 1120 for TY 2019 was filed on or about October 15, 2020 (three-year expiration: approximately October 15, 2023, subsequently tolled during Appeals proceedings), and the Form 1120 for TY 2020 was filed on or about October 15, 2021 (three-year expiration: approximately October 15, 2024). In both cases, the assessment period remained open through the date of settlement.

Context — Resolution of Examination for TY 2018

The following information is provided for reference and contextual purposes only and does not form part of the consent set forth in Parts II through IV above. This information is maintained in the Calderwood & Harkness matter file for administrative convenience.

The examination to which this consent relates was ultimately resolved at the IRS Office of Appeals with the execution of a Form 906 Closing Agreement on March 29, 2024, well within the extended assessment period of December 31, 2024, as established by this consent.

Proposed Adjustments for TY 2018 (per NOPA dated October 12, 2023):

The Notice of Proposed Adjustment issued by the IRS examination team on October 12, 2023 proposed the following adjustments to the taxpayer's reported income for the tax year ended December 31, 2018:

(a) CSA Cost-Sharing Adjustment: $57.61 million. The IRS proposed to increase PBI's cost-share percentage from the taxpayer's reported 39.6% to 50.6%, reflecting an increase of 11.0 percentage points applied to total qualified research and development costs of $523.8 million for TY 2018. The effect of this adjustment would be to reduce the amount of R&D costs borne by PPC and correspondingly increase the amount allocated to PBI, resulting in additional income to PPC under the CSA.

(b) Royalty Rate Adjustment: $49.55 million. The IRS proposed to increase the royalty rate applied to PBI's net sales of products embodying PPC's legacy (pre-CSA) intangible property from the taxpayer's reported rate of 4.5% to 11.0%, reflecting an increase of 6.5 percentage points applied to legacy IP net sales of $762.3 million for TY 2018 ($762.3M × 6.5% = $49.55M).

(c) These amounts, together with correlative offsets and related adjustments, contributed to the aggregate net proposed adjustment of $380.4 million across all four tax years under examination (TY 2017 through TY 2020).

Settlement Outcome for TY 2018:

At settlement, the TY 2018 adjustment was resolved at $12.4 million, which constitutes a portion of the total settlement amount of $47.6 million across all four tax years. The $47.6 million total settlement represents approximately 12.51% of the proposed aggregate adjustment of $380.4 million.

The penalty asserted under Section 6662(e) of the Internal Revenue Code (substantial valuation misstatement penalty) was fully abated for all tax years under examination, including TY 2018. The abatement was based on Penterra Pharmaceuticals Corp.'s reasonable-cause defense and the taxpayer's demonstration of contemporaneous documentation satisfying the requirements of Section 6662(e)(3)(B) of the Internal Revenue Code and Treasury Regulation § 1.6662-6.

Tax Due on TY 2018 Settlement:

The federal income tax due on the TY 2018 settlement adjustment is calculated as follows:

This amount represents a portion of the total $10.0 million in federal income tax due across all four tax years as determined under the Form 906 Closing Agreement dated March 29, 2024.

Applicable federal underpayment interest under Section 6601 of the Internal Revenue Code has accrued on the TY 2018 tax liability from the original due date of the return (April 15, 2019, as extended) through the date of payment. Interest was computed at the applicable underpayment rate prescribed by Section 6621(a)(2) and compounded daily in accordance with Section 6622. The precise amount of accrued interest was calculated by the IRS and reflected in the notice and demand issued following execution of the Form 906 Closing Agreement.

— END OF FORM 872 —

Form 872 (Rev. 9-2017) — Department of the Treasury — Internal Revenue Service — Cat. No. 17600S

Item	Amount
TY 2018 Settlement Adjustment (Taxable Income Increase)	$12,400,000
Applicable Federal Corporate Tax Rate (IRC § 11(b))	21%
Federal Income Tax Due — TY 2018	$2,604,000

Form 872
(Rev. September 2017)
Consent to Extend the Time to Assess Tax
Department of the Treasury — Internal Revenue Service
Under Section 6501(c)(4) of the Internal Revenue Code
OMB No. 1545-0024. For IRS Use Only. This form is used to extend the statutory period for assessment of federal income tax. Paperwork Reduction Act Notice: We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws. The time needed to complete and file this form will vary depending on individual circumstances. The estimated average time is 5 minutes. If you have comments concerning the accuracy of this time estimate or suggestions for making this form simpler, we would be happy to hear from you.
Part I — Taxpayer Identification
Taxpayer Name (as shown on return):
Penterra Pharmaceuticals Corp.
Number, Street, and Room or Suite No. (or P.O. Box number if mail is not delivered to street address):
2200 Independence Boulevard
City or Town, State, and ZIP Code:
Princeton Junction, NJ 08550
Employer Identification Number (EIN):
22-3741856
Taxpayer Status:
Publicly traded Delaware corporation (Nasdaq: PPCA)
Form Number of Return:
Form 1120 — U.S. Corporation Income Tax Return
Tax Year Ended:
December 31, 2018
Internal Revenue Service Center Where Return Was Filed:
Ogden, UT (per original electronic filing)
Part II — Consent Language
Statement of Consent
Penterra Pharmaceuticals Corp. (EIN: 22-3741856), the taxpayer identified above, and the Commissioner of Internal Revenue hereby consent and agree to the following:
Extension of Assessment Period
The amount of any Federal income tax due on the return(s) identified above for the period ended December 31, 2018, including any increases in the above tax and any penalties and additions to tax attributable thereto, may be assessed at any time on or before:
December 31, 2024
This consent establishes the date on or before which the Internal Revenue Service may assess any Federal income tax (including any applicable penalties, additions to tax, and interest) due for the tax period specified above. Without this consent, the assessment of any additional tax would be limited to the statutory period prescribed by Section 6501(a) of the Internal Revenue Code, which provides a three-year period of limitations from the date the return was filed. The original Form 1120 for the tax year ended December 31, 2018, was filed electronically on or about October 15, 2019, pursuant to an automatic extension of time to file under Section 6081 of the Internal Revenue Code. Accordingly, absent this consent, the normal three-year period of limitations under Section 6501(a) would have expired on or about October 15, 2022.
This extension is necessary because the Internal Revenue Service, Large Business & International Division, opened an examination of the taxpayer's Form 1120 for the tax year ended December 31, 2018, on May 16, 2022, under Exam Team ID LB&I-NE-TP-2022-00641. The examination, including the issuance of Information Document Requests (IDRs), the issuance of a Notice of Proposed Adjustment (NOPA), the filing of a Protest, and anticipated proceedings before the IRS Office of Appeals, requires time beyond the normal assessment period. This consent ensures that the Internal Revenue Service retains the ability to assess any additional tax due as determined through those proceedings.
This consent covers the assessment of tax, penalties, additions to tax, and interest arising from the examination of the taxpayer's transfer pricing positions under Section 482 of the Internal Revenue Code for the tax year ended December 31, 2018, and all other items of income, deductions, credits, or other amounts reported on or related to the taxpayer's Form 1120 for that tax year.
Preservation of Rights
This consent to extend the time for assessment does not limit the right of the taxpayer to file a claim for credit or refund under Section 6511 of the Internal Revenue Code, nor does it extend the period of time prescribed by Section 6511 within which such a claim may be filed. The filing of a claim for credit or refund by the taxpayer during the extended assessment period shall be governed by Section 6511 and the regulations thereunder.
This consent is effective on the date it is signed by the taxpayer. The taxpayer may, at any time thereafter, terminate this consent by sending written notice of termination, by certified or registered mail, to the Internal Revenue Service office considering the taxpayer's return. If the taxpayer exercises this right, the assessment period will expire on the date that is 90 days after the date the notice of termination is received by the Internal Revenue Service, or on the date specified in this consent as the expiration date of the extended assessment period, whichever is earlier.
The making of this consent does not deprive the taxpayer of any appeal rights to which the taxpayer would otherwise be entitled. The consent does not extend the time for the collection of any tax that has been assessed, and it does not affect the running of the period of limitations on collection as prescribed by Section 6502 of the Internal Revenue Code.
Reference to Related Examination
This consent relates to the Internal Revenue Service Large Business & International Division examination of Penterra Pharmaceuticals Corp.'s transfer pricing methodology for intercompany transactions with Penterra Biopharma International DAC ("PBI"), an Irish designated activity company and wholly owned subsidiary of the taxpayer. PBI is held through Penterra Holdings Luxembourg S.à r.l., a Luxembourg private limited liability company that is treated as a disregarded entity for U.S. federal income tax purposes under Treasury Regulation § 301.7701-3.
The examination addresses the following intercompany arrangements and transactions between Penterra Pharmaceuticals Corp. ("PPC") and PBI:
(a) The qualified cost-sharing arrangement ("CSA") within the meaning of Treasury Regulation § 1.482-7, effective July 1, 2012, pursuant to which PPC and PBI share the costs and risks of developing intangible property relating to the taxpayer's pharmaceutical product portfolio;
(b) The platform contribution transaction ("PCT") within the meaning of Treasury Regulation § 1.482-7(c), entered into in connection with the formation of the CSA, under which PBI was required to make payments to PPC reflecting the value of PPC's pre-existing intangible property and other resources, capabilities, and rights made available to PBI in connection with PBI's participation in the CSA; and
(c) The legacy intellectual property royalty arrangement between PPC and PBI, pursuant to which PBI makes royalty payments to PPC for the right to use, manufacture, and sell products embodying PPC's pre-CSA intangible property in territories outside the United States.
The IRS examination team assigned to this matter is as follows:
Exam Team: IRS Large Business & International Division, Northeast Transfer Pricing Practice
Team ID: LB&I-NE-TP-2022-00641
Supervisory Revenue Agent (Team Manager): Gerald Meskill
Lead Revenue Agent: Patricia Dunleavy
Part III — Taxpayer Signature block
The taxpayer identified above hereby consents to the extension of the period of limitations for assessment as set forth in Part II of this form. By signing below, the undersigned represents and warrants that he or she is duly authorized to execute this consent on behalf of the taxpayer.
PENTERRA PHARMACEUTICALS CORP. EIN: 22-3741856
By: ________
Name: Marcus Whitfield
Title: Vice President, Global Tax
Date: September 14, 2022
Taxpayer's Authorized Representative:
Calderwood & Harkness LLP 125 Broad Street New York, NY 10004
Responsible Partner: Leonard Cross C&H Matter Number: 1018-00009
Authorization: IRS Form 2848 (Power of Attorney and Declaration of Representative), filed June 8, 2022, authorizing the following individuals to represent Penterra Pharmaceuticals Corp. before the Internal Revenue Service in connection with the examination of Form 1120 for tax years ended December 31, 2017 through December 31, 2020:
•  Leonard Cross, Partner, Calderwood & Harkness LLP
•  Sylvia Hartwell, Partner, Calderwood & Harkness LLP
•  Garrett Simmons, Counsel, Calderwood & Harkness LLP
•  Leila Nazari, Associate, Calderwood & Harkness LLP
Part IV — Internal Revenue Service Signature block
The Internal Revenue Service hereby consents to the extension of the period of limitations for assessment as set forth in Part II of this form.
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
By: ________
Name: Gerald Meskill
Title: Supervisory Revenue Agent / Team Manager
Office: IRS Large Business & International Division Northeast Transfer Pricing Practice
Date: September 19, 2022
Part V — Additional Information / Instructions
Instructions for Filing
The following standard instructions apply to this Form 872:
1.  Retention of Copies. The taxpayer should keep a copy of this fully executed consent for its records. The Internal Revenue Service will provide a signed copy to the taxpayer (or the taxpayer's authorized representative, if applicable) after execution by both parties.
2.  Change of Address. If the taxpayer's address changes after the date this consent is executed, the taxpayer should promptly send written notice of the new address to the Internal Revenue Service office that is considering the taxpayer's return. Failure to provide timely notice of an address change may result in correspondence being sent to the address shown on this form.
3.  Successors and Assigns. This consent is binding upon the taxpayer, its successors, and assigns. Any corporation that acquires the taxpayer or its assets in a transaction described in Section 381 of the Internal Revenue Code, or any other successor to the taxpayer's tax attributes, shall be bound by this consent to the same extent as the taxpayer.
4.  Multiple Consents. If more than one consent to extend the period of limitations has been executed for the same tax period, the consent with the latest expiration date controls.
5.  Effect on Statute of Limitations. This consent extends only the period of limitations for assessment. It does not extend the period of limitations on collection or the time for filing a claim for credit or refund.
Filing and Retention Notes
•  One fully executed original to be retained in Calderwood & Harkness LLP matter file (Matter No. 1018-00009).
•  One fully executed copy provided to Marcus Whitfield, Vice President, Global Tax, Penterra Pharmaceuticals Corp., for PPC's tax department records.
•  One fully executed copy retained by IRS Large Business & International Division, Northeast Transfer Pricing Practice, in the examination file for Exam Team ID LB&I-NE-TP-2022-00641.
Note Regarding Companion Form 872 for TY 2017: This Form 872 is one of two consents executed in connection with the IRS examination under Team ID LB&I-NE-TP-2022-00641. A separate Form 872 was also executed for the tax year ended December 31, 2017, extending the assessment period for that tax year through December 31, 2024 (maintained in the Calderwood & Harkness matter file as "consent-to-extend-statute-form-872.docx"). The terms and conditions of the TY 2017 consent are substantially identical to those set forth herein.
Note Regarding TY 2019 and TY 2020: The tax years ended December 31, 2019 and December 31, 2020 did not require the execution of consent-to-extend forms because the normal three-year assessment periods under Section 6501(a) of the Internal Revenue Code for those tax years had not yet expired at the time of the conclusion of the examination and the execution of the Form 906 Closing Agreement. Specifically, the Form 1120 for TY 2019 was filed on or about October 15, 2020 (three-year expiration: approximately October 15, 2023, subsequently tolled during Appeals proceedings), and the Form 1120 for TY 2020 was filed on or about October 15, 2021 (three-year expiration: approximately October 15, 2024). In both cases, the assessment period remained open through the date of settlement.
Context — Resolution of Examination for TY 2018
The following information is provided for reference and contextual purposes only and does not form part of the consent set forth in Parts II through IV above. This information is maintained in the Calderwood & Harkness matter file for administrative convenience.
The examination to which this consent relates was ultimately resolved at the IRS Office of Appeals with the execution of a Form 906 Closing Agreement on March 29, 2024, well within the extended assessment period of December 31, 2024, as established by this consent.
Proposed Adjustments for TY 2018 (per NOPA dated October 12, 2023):
The Notice of Proposed Adjustment issued by the IRS examination team on October 12, 2023 proposed the following adjustments to the taxpayer's reported income for the tax year ended December 31, 2018:
(a) CSA Cost-Sharing Adjustment: $57.61 million. The IRS proposed to increase PBI's cost-share percentage from the taxpayer's reported 39.6% to 50.6%, reflecting an increase of 11.0 percentage points applied to total qualified research and development costs of $523.8 million for TY 2018. The effect of this adjustment would be to reduce the amount of R&D costs borne by PPC and correspondingly increase the amount allocated to PBI, resulting in additional income to PPC under the CSA.
(b) Royalty Rate Adjustment: $49.55 million. The IRS proposed to increase the royalty rate applied to PBI's net sales of products embodying PPC's legacy (pre-CSA) intangible property from the taxpayer's reported rate of 4.5% to 11.0%, reflecting an increase of 6.5 percentage points applied to legacy IP net sales of $762.3 million for TY 2018 ($762.3M × 6.5% = $49.55M).
(c) These amounts, together with correlative offsets and related adjustments, contributed to the aggregate net proposed adjustment of $380.4 million across all four tax years under examination (TY 2017 through TY 2020).
Settlement Outcome for TY 2018:
At settlement, the TY 2018 adjustment was resolved at $12.4 million, which constitutes a portion of the total settlement amount of $47.6 million across all four tax years. The $47.6 million total settlement represents approximately 12.51% of the proposed aggregate adjustment of $380.4 million.
The penalty asserted under Section 6662(e) of the Internal Revenue Code (substantial valuation misstatement penalty) was fully abated for all tax years under examination, including TY 2018. The abatement was based on Penterra Pharmaceuticals Corp.'s reasonable-cause defense and the taxpayer's demonstration of contemporaneous documentation satisfying the requirements of Section 6662(e)(3)(B) of the Internal Revenue Code and Treasury Regulation § 1.6662-6.
Tax Due on TY 2018 Settlement:
The federal income tax due on the TY 2018 settlement adjustment is calculated as follows:
This amount represents a portion of the total $10.0 million in federal income tax due across all four tax years as determined under the Form 906 Closing Agreement dated March 29, 2024.
Applicable federal underpayment interest under Section 6601 of the Internal Revenue Code has accrued on the TY 2018 tax liability from the original due date of the return (April 15, 2019, as extended) through the date of payment. Interest was computed at the applicable underpayment rate prescribed by Section 6621(a)(2) and compounded daily in accordance with Section 6622. The precise amount of accrued interest was calculated by the IRS and reflected in the notice and demand issued following execution of the Form 906 Closing Agreement.
— END OF FORM 872 —
Form 872 (Rev. 9-2017) — Department of the Treasury — Internal Revenue Service — Cat. No. 17600S
Item | Amount
TY 2018 Settlement Adjustment (Taxable Income Increase) | $12,400,000
Applicable Federal Corporate Tax Rate (IRC § 11(b)) | 21%
Federal Income Tax Due — TY 2018 | $2,604,000

Form 872

PENTERRA PHARMACEUTICALS CORP. EIN: 22-3741856

INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY

Record

Parties

Dates

Amounts