Accordingtoyourrequest,weanalyzedfinancialandnonfinancialdatathatwouldimpact

yourtaxliability,useandaccesstothisdata,andpotentialforeignexpansionofPandemonium
Inc.
Fortaxpurposes,theessentialactivitiesaretodeferrecognitionofincomeandaccelerate
deductions.Acommonwaytoacceleratethosedeductionsistodepreciatebusinessesassets
usingaMACRSdepreciationtable.Itdoesthisbydepreciatingtheassetsatafasterratethan
whatiscommonlyusedforbookpurposes.Inordertodeferfuturerevenue,werecommendthat
youtakeadvantageofyourcurrentNetOperatingLosseswhichyoucancarryforwardfor20
years.Inadditiontothesefirsttwostepsthereareothercommoncreditsanddeductionsthat
PandemoniumInc.canclaimtodayandinfutureyears.TheseincludeR&Dtaxcredits,AMTtax
credits(onceapplicable),charitablecontributionsdeductions,mealsandentertainment
deductions,andothers.Thisisasummaryoffinancialdatathatcanbeusedtolimityoutax
liability.
Withregardstononfinancialdata,wewouldfirstliketoaddressnonfinancialreporting.It
isbecomingincreasinglypopularamongthenationslargestcompaniestoreportenvironmental
andemploymentdataalongwithtraditionalfinancialstatements.Reportingthisinformationcan
allowyourcompanytoclaimenvironmentaltaxincentivesinparticularaswellasboostthePRof
yourcompany.Werecommendthatyoualsoanalyzecustomersatisfactiondatainorderto
predictfutureprofitability.FutureprofitabilityhasamaterialimpactonhowPandemoniumInc.
addressesentityclassification.
Therearetwooptionswewouldliketopresenttoyou:classifyingasanSCorporationora
CCorporation.Thechoicemadewillimpactfederal,stateandeventuallyinternationaltaxliability.
SCorporationclassificationresultsinaflowthroughdirectlytotheownersmaxingoutata39.6%
taxliabilityunlessnetincomeisreinvestedintothecompanyandtheownersreceiveguaranteed
payments.Theissueofstatetaxiswherethingsbecomelessclear.Currently,statesarestill
disputingjurisdictionwithregardstoincomegeneratedbysoftwaresoldanddelivered
electronically.Wewouldlikeadditionaltimetoanalyzeapportionmentforthecurrentandfuture
years.InNebraska,thereisanoperationtaxforSCorporationsinsteadofanincometaxandin
Californiathereisa1.5%marginalincometaxrate.ForCCorporationsthereisanapproximate
35%federalmarginaltaxrate,inNebraskathereisa7.81%marginalincometaxrate,andin
Californiatheincometaxisthegreaterof$800or8.84%.Theissueofselectionbecomesmore
clearonceyourcompanyexpandsoverseas.Werecommendthatyourforeignheadquarters
classifyasaseparateentitysoallincomegeneratedoverseascanbepermanentlyreinvestedso
thatitisonlysubjectto16%taxratesinsteadofU.S.incometaxes.SCorporationscannotown
100%ofaforeignentitysowhenforeignexpansiondoestakeplaceitwillbecrucialthat
PandemoniumInc.classifyasaCCorporation.
Wewishnothingbutthebestsuccesstoyourcompanysoforstarterswesuggestthatyou
investinataxresearchdatabase.IntelliConnectisagreatexampleofadatabasethatwould
allowyoutoresearchtaxcodesandstayuptodateonthelatesttaxresearch.Also,atPwCwe
offerabroadrangeofotherprofessionalservices.WeareequippedtohelpPandemoniumInc.
transitiontoaglobalcorporationandhavethetoolsinplacetomakesurethatyourcompanyis

runningefficiently.Also,wehaveaspecificstrategyinplacetospecificallyservecompaniesthat
generateincomethroughthesaleofmobileapps.
Finally,wewereabletotakethetimeandlookatyourexpansionproposition.Atthistime,
wefeelthatthebestopportunityforPandemoniumInc.istobuildinKhayali.Inadditiontothefact
thattheyarewillingtomatchthe16%incometaxproposedbyTuong,theyarealsoonlyrequiring
25%ofKhayalicitizensgivingyougreateremploymentflexibility.Khayalihasamoredeveloped
economyoutofthetwocountriesandthefactgreaterurbanizationistakingplace,theyhavea
largerpopulation,andtheirGDPpercapitaisgreaterthereisanincreasedlikelihoodthattheywill
havebetterequippedcitizenstoemploy.Thisalsoprovidesabetterenvironmentforyoutogrow
yourcompany.
WeappreciatetheopportunitytopresenttoyoutodayandwewishPandemoniumInc.the
greatestsuccess.