| Background Crown Vantage, Inc. and Crown Paper Co. (collectively the “Debtors”) filed a Chapter 11 bankruptcy petition on March 15, 2000. At that time, one or more of the Debtors was obligated to you for an outstanding debt. As part of the plan of reorganization approved by the bankruptcy court the Crown Paper Liquidating Trust (the “Liquidating Trust”) was formed on March 1, 2002 to liquidate the remaining assets in an orderly fashion. When the Debtors’ assets were transferred pursuant to the Debtors’ Plan of Reorganization and the court’s Confirmation Order, the IRS deemed the creditors to have both received a share of the assets and simultaneously to have contributed that share to the Liquidating Trust. The IRS considers your receipt of a share of the Debtors’ assets contributed to the Liquidating Trust to be a payment in exchange for the full amount of the debt owed to you. Although it may not seem fair, Federal income tax laws mandate this treatment. Accordingly, the Trustee is required to advise you of the value of the payment you received. Asset and Unit Value The value for tax purposes of each trust unit you received is based on the valuation of the Debtors’ net assets on March 1, 2002. The Debtors’ net assets consist almost exclusively of litigation claims. The assets other than litigation claims had inconsequential value in relation to the obligation of the Trust to pay unpaid chapter 11 administrative expenses, post confirmation expenses and other claims that have priority over distribution to trust units. The value of the litigation claims is based entirely on potential future recoveries and, therefore, that worth cannot be determined with any reasonable accuracy. Thus, the trust units have no value for tax purposes on March 1, 2002. It is important to recognize that this prudent and conservative estimate of zero value is solely for tax purposes and does not necessarily represent the future value of the trust units when and if such contingencies are resolved. IRS Reporting Because your share of the Liquidating Trust represents a payment to you, the IRS requires that payment be reported to you. Accordingly, this notice is being furnished to facilitate such required reporting. You received property (Trust Units) with respect to this payment worth $0.00 for tax purposes. While it seems unusual to recognize the Trust Units you received as a payment, it is a result of applicable Federal tax law. Tax Implications Because you did not receive trust units with value for each dollar you were owed, you may have a deductible loss associated with your receipt of the net assets of the trust. THE LIQUIDATING TRUSTEE AND HIS PROFESSIONALS CANNOT DETERMINE THE TAX TREATMENT THAT APPLIES TO YOU BECAUSE IT DEPENDS ON HOW YOUR TAX RETURN WAS PREPARED IN THE PAST, RELATIVE TO YOUR CLAIM. IT IS IMPORTANT, THEREFORE, TO SEEK ADVICE OF A TAX PROFESSIONAL FAMILIAR WITH YOUR SPECIFIC TAX SITUATION. Since you are now a beneficiary of the Liquidating Trust, you may or may not receive cash distributions. You will receive a Grantor Statement reflecting your share of the Liquidating Trust’s gains and losses for 2002 and each year going forward, until the trust liquidates the remainder of its assets. Information on the Grantor Statement will need to be reported on your annual federal income tax return. We anticipate the initial year, 2002 Grantor Statements may not be available for distribution until early in October 2003. Please be aware that there is no assurance that funds will be available in the future to make any cash distributions to you. It is important for you to know the tax basis of your units in the Liquidating Trust, in order to determine gain or loss for tax purposes, in the event you dispose of your trust units, or receive cash distributions that are greater than your tax basis. Tax basis in your trust units is comprised of the following: ¨ $0.00 per Trust Unit as of March 1, 2002, ¨ Increased by your share of income and gains reported on the annual Grantor Statement(s), ¨ Reduced (but not below zero) by your share of expenses and losses reported on the annual Grantor Statement(s), and ¨ Reduced (but not below zero) by any cash distribution(s) you receive. Expenses and losses in excess of basis can be utilized, in future, if and when basis is restored. Additionally, if you receive a distribution in excess of your basis it will create a capital gain. * * * * * * * * * * The tax law is not always clear as to the proper way of handling a transaction and the facts are often susceptible to different interpretations under the Internal Revenue Code. This analysis was provided for illustrative purposes only and is based upon laws, regulations, rulings and court decisions now in effect, all of which are subject to change, possibly with retroactive consequence. Specific facts and circumstances relative to your particular tax situation may change the results of explanations presented above. This information is not intended to provide tax advice to trust beneficiaries. We suggest you consult your tax advisor for guidance concerning the tax ramifications of the transactions explained herein. The analysis set forth above would not apply to certain holders, including foreign and tax exempt holders, holders who are themselves trusts or mutual funds, insurance companies and other taxpayers with special circumstances. If any special circumstances apply to you, please consult your tax advisor. The Liquidating Trustee and his professionals cannot provide income tax advice to trust beneficiaries. If you have any other questions about this notice, you may write to the address shown above or send your inquiry via facsimile to Ms. Lesley J. Johnson, CPA, at 954-761-1033. Please include your name, taxpayer identification number, fax number or email address and daytime telephone number. You will be contacted directly upon receipt of your inquiry. Please remember, neither the trust nor its professionals can provide advice to you on your individual tax situation. We suggest you consult your tax advisor for advice concerning the current and future tax consequences of this transaction.
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