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Newcastle Announces Tax Basis Of New Residential Distribution

As previously disclosed, on May 15, 2013, Newcastle Investment Corp. (NYSE: NCT, “Newcastle”) completed the spin-off of New Residential Investment Corp. (NYSE: NRZ, “New Residential”) by distributing shares of New Residential common stock to the holders of Newcastle common stock as of the spin-off record date (“Record Holders”), which was May 6, 2013. If you were not a Record Holder, the following information might not be applicable to you or your shares.

Tax Basis of Distributed New Residential Stock

For U.S. federal income tax purposes, Newcastle intends to report its distribution of shares of New Residential common stock (the “ Distributed Shares”) as a distribution with a fair market value of $6.89 per share. For U.S. federal income tax purposes, this amount will also be Record Holders’ adjusted basis in each Distributed Share.

Impact of Distribution on Newcastle Stockholders

For U.S. federal income tax purposes, Newcastle’s distributions (including cash dividends and stock distributions, which include the Distributed Shares) in any year are treated as ordinary taxable dividends to the extent of its earnings and profits (“E&P”). The distribution of the Distributed Shares creates E&P for 2013 equal to approximately $2.40 per share, which is equal to the fair market value of the Distributed Shares ($6.89 per share) less Newcastle’s tax basis in New Residential’s assets ($4.49 per share).

The taxability of the Distributed Shares will be determined in the context of all Newcastle E&P and distributions, which will not be known until early 2014 . However, solely for illustration purposes, if the taxability of the Distributed Shares was determined on a standalone basis, the following treatment would apply:

  • $2.40 per share would be ordinary taxable income
  • The lesser of $4.49 and the Record Holder’s tax basis in their Newcastle shares would be a non-taxable return of capital
  • If $4.49 exceeds a Record Holder’s tax basis in their Newcastle common stock, the excess will generally be treated as capital gain.

Please note that the taxability of Distributed Shares will not be determined on a standalone basis. The above illustration only reflects the E&P generated by the distribution of the Distributed Shares. Newcastle’s E&P for the year will depend on Newcastle’s other activity for the year, which may increase or decrease the taxable and non-taxable amount of the Distributed Shares. The actual amounts of Newcastle’s E&P, the ordinary taxable income and the non-taxable return of capital will not be available until early 2014.

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