Wellco Energy Services Trust

Wellco Energy Services Trust

March 29, 2007 11:17 ET

Wellco Energy Services Trust Releases 2006 U.S. Tax Information

CALGARY, ALBERTA--(CCNMatthews - March 29, 2007) - The information that follows is being provided to assist U.S. individual unitholders of Wellco Energy Services Trust (TSX:WLL.UN) ("Wellco") in reporting distributions received from Wellco on their Internal Revenue Service ("IRS") Form 1040, U.S. Individual Income Tax Return for the calendar year 2006. This information is of a general nature only and is not intended to be legal or tax advice.

In consultation with its U.S. tax advisors, Wellco believes that its trust units should be properly classified as equity in a corporation, rather than debt, and that dividends paid to U.S. individual unitholders should be "qualified dividends" for U.S. federal income tax purposes. As such, the portion of the distributions made to a unitholder during 2006 that are considered dividends for U.S. federal income tax purposes should qualify for the reduced rate of tax applicable to long-term capital gains. However, the individual taxpayer's situation must be considered before making this determination.

Wellco has not received an IRS letter ruling or a tax opinion from its tax advisors on these matters.

With respect to cash distributions paid during the year to U.S. individual unitholders who held their units outside a qualified retirement plan, 6.16% should be reported as a return of capital (to the extent of a U.S. individual unitholder's U.S. tax basis) and 93.84% should be reported as "qualified dividends". If the return of capital portion of distributions received exceeds a U.S. individual unitholder's tax basis, the excess should be reported as capital gain.

The taxable portion (for Canadian income tax purposes) of the distributions is subject to a minimum 15% Canadian withholding tax that is withheld prior to any payments being distributed to unitholders. Where trust units are held in a cash account, we believe that this withholding tax should be creditable, subject to numerous limitations, for U.S. tax purposes in the year in which the withholding taxes are withheld. Where trust units are held in a qualified retirement account, the same withholding taxes apply but the amount is not creditable for U.S. tax purposes.

The amount of Canadian tax withheld should be reported on Form 1116, "Foreign Tax Credit (Individual, Estate, or Trust)". Information regarding the amount of Canadian tax withheld in 2006 should be determined from your own records and is not available from Wellco. Amounts over withheld (such as withholding taxes on the return of capital portion of the distributions as computed for Canadian income tax purposes), if any, from Canada should be claimed as a refund from the Canada Revenue Agency no later than two years after the calendar year in which the payment was paid and should not be claimed as a credit against your U.S. federal income tax liability.

For further information on taxability of 2006 distributions for both Canadian and U.S. unitholders paid by Wellco, please refer to the Investor Relations / IR Overview section of our website at www.wellcoenergy.com and consult your qualified tax advisor.

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