Posts Tagged ‘Grassley’

Tax Roundup, 12/20/2013: S corporation built-in gain window closing? And more!

Friday, December 20th, 2013 by Joe Kristan

S-SidewalkThe S corporation Built-in gain window is closing.  The main benefit of S corporations since 1986 is that their income is only taxed once — when it is earned, on the tax returns of its owners.  After-tax earnings may be distributed to owners without another tax; undistributed earnings increase the basis of the owners’ stock, reducing gains when the stock is sold.

C corporations, in contrast pay a tax on their own income.  C corporation shareholders pay a second tax when the after-tax earnings are distributed; they don’t get a basis step-up for undistributed earnings, so they pay the second tax on undistributed earnings as part of their gain when they sell their shares.

To keep C corporations from becoming S corporations and liquidating the next day, Congress enacted the Built-in Gains Tax in the 1986 tax reforms.  This tax applies to any C corporation that makes an S corporation election.  It hits all “built-in gains” recognized during the “recognition period” following the election at 35%; the after-tax built-in gains are then also taxed on shareholder returns.

“Built-in gains” are any income items accrued as a C corporation as of the day of the S election.  For example, if the corporation owns land with a cost of $10,000 and a value of $15,000 as of the date of the S election, it has a $5,000 built-in gain.  If it sells the land during the “recognition period,” it pays the tax on the lesser of the actual gain or the $5,000 built-in gain.

The recognition period was 10 years when the tax was enacted.  It has been reduced to 5 years by temporary legislation, but absent new legislation it will revert to 10 years starting January 1.  That means S corporations that made elections taking effect in 2004-2007 can sell built-in gain assets before December 31 without the tax, but the same gain will be subject to the tax starting January 1.   That has obvious year-end planning implications.   If you are going to sell soon, it may be best to sell right now, as two weeks from now may be too late.

Yes, it is possible that the five-year period will get extended again, but who wants to count on Congress?

More 2013 year-end tax tips every day through December 31 at the Tax Update!

 

Why the IRS shouldn’t get political.  People who don’t think the IRS Tea Party scandal is serious need to consider how other places use the tax law.  France24 reports: Putin to pardon jailed tycoon Mikhail Khodorkovsky.

Mr. Khordorkovsky was imprisoned for 10 years on tax evasion charges.  His real offense was opposing Vladimir Putin while wealthy.  The message was surely heard by other wealthy Russians with the means to oppose the regime.

As complicated as the tax law is, it would be easy work for a politicized IRS to make trouble for disfavored opponents.  That’s why the Tea Party scandal is so serious, and why the new proposals to regulate 501(c)(4) outfits are so outrageous.  And yes, it could happen here.  It did.

 

Flickr image courtesy Shock264 under Creative Commons license

Flickr image courtesy Shock264 under Creative Commons license

If it needs a subsidy to happen, it probably shouldn’t happen.  Tax break for wind power is up in the air, advocates say (Des Moines Register)

The wind provision is one of about 50 tax credits that are expected to expire at the end of 2013. U.S. Sen. Chuck Grassley, R-Ia., said the tax credits, which are usually dealt with together, failed to get a vote in Congress this year because key lawmakers thought they could include them as part of a major tax-reform bill.

Grassley told reporters that passage of a more sweeping tax overhaul appears unlikely. Senate Finance Chairman Max Baucus, D-Mont., told him last week that Congress expects to deal with wind and the other tax credits in 2014. “He wasn’t specific on when it would happen, but he said we are going to have to do (extensions of the tax credits) next year,” Grassley told reporters.

These things are passed one year at a time to pretend that they are much less expensive than they are under Congressional budget rules.   A felony in the private sector, business as usual in Congress.

 

Alan Cole,  Party in the UK (Tax Policy Blog)

Critically, the UK has improved its tax system substantially. It is moving towards a more competitive, more neutral tax base that treats all sorts of economic activity equally. While they have been willing to increase sales taxes – a neutral, simple tax – they are also reducing the costly corporate tax. Corporate taxes tend to substantially reduce the welfare of everyone – both the owners of corporate stock and the workers who depend on heavy capital investments. They have also abolished crippling financial transaction taxes.

Crippling financial transaction taxes like the one supported by Iowa Senator Harkin and his would-be successor Bruce Braley.

 

Jason Dinesen, Death Master File Changes Coming — Finally!  “All I can say is — thank you Congress (how often do we say that anymore?), and it’s about time.”

William Perez,  Using a Donor-Advised Fund to Donate to Charity at Year End

Howard Gleckman,  A New Look at Who Benefits from Tax Expenditures.  ”There is a tax expenditure under the holiday tree for just about everyone.”

Speaking of trees.  O Christmas Tree, O Christmas Tree, Please Congress don’t tax our Christmas Trees (Kay Bell)

TaxGrrrl,  12 Days Of Charitable Giving 2013: Helping Hands Center For Special Needs   

 

TaxProf, The IRS Scandal, Day 225

Tax Justice Blog,  State News Quick Hits in Wisconsin, Illinois, Kentucky and Oklahoma

News from the Profession.  Short Sellers, Moms, Son of God, all Credited with Encouraging PwC’s Vigorous Audit of Herbalife (Going Concern)

Get your Friday Buzz from Robert D. Flach!

 

IrwinIrwinirwin.jpgQuotable me.  From Peter Reilly, Andrew Schiff Does Not Recommend That You Imitate His Father Irwin:

When I asked Joe Kristan for his thoughts on the matter he summed up the realist perspective pretty well:

“Oh, my.

“I don’t care to go down the rabbit hole on the tax protester arguments. However convincing they may seem to adherents, they just don’t work. Given the choice between Irwin Schiff’s theories and all the federal judges that have ruled on these arguments – and they’ve been put before the courts countless times – a wise taxpayer goes with what the judges say. Every time. You can believe there is no income tax, but if the IRS agent, the federal judge, the federal marshals, and the Bureau of Prisons say otherwise, for all practical purposes there is an income tax.”

Yep, I said that.  Thanks, Peter!

 

Mom can’t share everything.  Mothers are famous for sharing all with their kids, but sometimes it doesn’t work out.  From STLtoday.com:

A Creve Coeur venture capitalist was sentenced to five years in federal prison Thursday on a tax evasion charge for dodging millions of dollars in taxes from 2006-2009, the U.S. Attorney’s office said.

Burton Douglas Morriss, 50, should have paid $5.5 million, prosecutors said, but used $18 million in tax losses in 2007 alone to reduce the amount he claimed to owe. The companies that incurred the losses “were established as single member limited liability companies for Morriss’s mother” and she had already claimed those losses in past returns, prosecutors said.

Five years is the maximum sentence for a one-count tax evasion plea.   It’s not nice to steal Momma’s tax losses.

 

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Tax Roundup, 3/5/2013: Good intentions, broken whistles. Also: file all the forms!

Tuesday, March 5th, 2013 by Joe Kristan

 

Swiss knife

“Ultimate Swiss Army Knife” image courtesy redjar under Creative Commons license.

The Iowa income tax as Swiss Army Knife.  The Iowa Senate Veterans Affairs Committee yesterday sent to the floor a proposal for up to $1,500 in tax credits for hiring an Iowa resident who is “a member of the national guard, reserve, or regular omponent of the armed forces of the United States” for a job of at least 30 hours a week.  The bill would also give an additional $500 tax credit for each year the employee is called to active service for at least 30 days.

SSB 1064 cleared the committee unanimously.  After all, who would vote against the “Hire a Hero Tax Credit?”  But this is a classic example of a feel-good tax provision that clutters the tax law, is very difficult to enforce, and would not accomplish enough to be worth the trouble.

Nobody will hire an employee just to get a $1,500 tax credit.  You hire somebody because you have work to do.  Because it’s so hard to find and keep good employees, you hire the person you think is most likely to work out; the cost of a hiring mistake can be a lot more than $1,500.  It will be hard to enforce — especially the provision saying the credit is unavailable if the new employee replaces another “eligible employee.”  Will the state really examine that?  Like many credits, it won’t change behavior; it will just be harvested by taxpayers who would have hired the same military people anyway.

Still, why not make a nice gesture to show our voters how much we care?  Because every feel-good tax break has a cost.  It costs money to comply with and enforce.  It also creates a new anti-tax reform interest group; any attempt to clear away expensive and ineffective tax breaks to make a better tax system for everyone will be fought by those few that collect it.  It makes a good tax system for everyone just a little bit harder.

The primary purpose of the tax law is to finance government operations.  When it become a Swiss Army Knife of public policy, it becomes a little less effective at its real job every time you add a new gadget.

 

Swiss Bank corpse fined $58 million for tax cheating.  The Wegelin Bank, which is closing as a result of its legal troubles, was sentenced yesterday to pay a $58 million tax evasion fine for helping clients evade U.S. taxes.  Robert W. Wood has more.

Patrick Temple-West,  Wegelin withers under U.S. tax scrutiny, and more (Tax Break)

 

While whistleblower Bradley Birkenfeld had a big role in bringing down the Swiss bank tax evasion industry, the IRS continues to resist paying out whistleblower awards.  While Mr. Birkenfeld scored $104 million for his snitching, Lynnley Browning reports that the IRS remains loath to pay for information:

In January, Sen. Charles Grassley, the 79-year-old Iowa Republican, chastised acting IRS commissioner Steven Miller over his recent proposal to restrict the agency’s whistleblower program, already an object of criticism since its creation in 2006. The proposed curbs, Grassley wrote in a letter to Miller, showed one thing: that the IRS and its boss, the Treasury Department, “view whistleblowers with hostility.”

What exactly is at issue? The current whistleblower rules say a tipster can collect a reward of 15%-30% of proceeds brought in as a direct result of a tip. The dirt has to involve tax evasion of at least $2 million or tax fraud by an individual making at least $200,000 a year.

Miller’s proposed restrictions will likely shrink payouts. Among the curbs: making it nearly impossible for whistleblowers to share in rewards stemming from a company’s inflation of losses, and excluding from rewards any money brought in from so-called Fbar fines.

Apparently the IRS would rather spend its time making experienced preparers take stupid open book tests for permission to continue what they have been doing for years than to actually pursue tax cheats. Only two whistleblower claims have been paid out, but the IRS feels it has plenty of time and resources to appeal the shutdown of its preparer regulation program.

 

William McBride, How do Taxes and Spending Affect Economic Growth? (Tax Policy Blog)  “The worst option of all, according to a huge preponderance of evidence, is to replace the sequester spending cuts with higher income taxes.”

20130305-1

 

Russ Fox,  IRS Opens for All.  We can e-file all the forms.

TaxGrrrl,IRS Now Accepting All Individual Returns

Paul Neiffer,  IRS Announces They Are Processing All Remaining Tax Forms

Jeremy Scott, Is the U.S. Tax Gap as Big as Italy’s?  (Tax.com).  “But numbers from a New York Times article about Italian tax evasion suggest that the United States isn’t doing much better than one of Europe’s most notoriously inefficient tax collectors.”

Jack Townsend, Second Circuit Holds That Fraud on the Return — Even If Not the Taxpayer’s — Causes an Unlimited Civil Assessment Statute of Limitations to Apply

Linda Beale,  Jenkins & Gilchrist attorney sentenced to 8 years for tax shelter work

Yes.  Minnesota Tax Reform:  Poorly Designed??  (Brian Strahle).

Kay Bell,  Tax Carnival #114: March 2013 Tax Lions and Lambs

 

Good.  Pennsylvania Is Trying to Ditch the Attest Hour Requirement for New CPAs (Going Concern).  If you want to do tax work for a living, why waste two years doing audit work that you hate?

I don’t condone the behavior, but I bet every bus driver dreams it.  From WQAD.com:

Two Iowa bus drivers lost their jobs after being accused of racing school buses filled with students.

According to police the two drivers were returning with students from a Valentine’s Day field trip when one driver turned the ride into a race.

The students were first graders from Iowa Falls. Nobody was hurt.

I might not make a very good bus driver.  I’d probably always be racing…

 

 

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Tax Roundup, 9/20/12: Minnetonkan voted off the island. Also: 6 million health insurance scofflaws.

Wednesday, September 19th, 2012 by Joe Kristan

Twin Cities hotel magnate gets 4 1/2 years accommodation.  From TCBmag.com:

Local real estate developer Jeffrey Wirth was sentenced Wednesday to four-and-a-half years in prison for tax evasion, Minnesota’s U.S. Attorney’s Office said.

In addition, U.S. District Judge Ann D. Montgomery ordered Wirth to pay $6.46 million in restitution to the U.S. Internal Revenue Service (IRS).

Wirth, owner and CEO of Brooklyn Center-based The Wirth Companies, is also the former owner of the Grand Hotel in downtown Minneapolis, the Grand Rios Hotel & Waterpark in Brooklyn Park, and the Grand Lodge Hotel & Waterpark of America in Bloomington—as well as nearly 30 other businesses, according the U.S. Attorney’s Office.

Mr. Wirth is known for his purchase of a $2 million island in Minnetonka, where he built a $3 million house that now sits derelict.  How did he get in such trouble?

They often recorded personal expenses as business expenses and claimed false “management fees” in an effort to “reduce the company’s overall taxable income to nearly zero,” the U.S. Attorney’s Office said. Wirth also admitted to understating his own salary to the IRS.

That didn’t go well at all.

Prior coverage here. In unrelated Minnesota news,  Prince Fails to Comply With Tax Summons (TaxGrrrl)

 

$.0113 billion down, 5.1887 billion to go.   Fourteen arrested in U.S. tax fraud, identity theft ring  (Reuters):

“The defendants in this case allegedly tried to steal $65 million using stolen identities to obtain refunds to which they were not entitled,” U.S. Attorney Paul Fishman said in a statement. They succeeded in getting $11.3 million in refunds.

The Treasury Inspector General for Tax Administration says identity theft refund fraud is a $5.2 billion annual problem.  At this rate, it’s going to take a long time to solve.

 

Thanks, Justice Roberts!  ObamaCare “Penalty Tax” Now Estimated to Hit 6 Million Mostly Low- and Middle-Income Americans (William McBride, Tax Policy Blog).

 

 

We didn’t mean to screw it up so badly. Senator Grassley says the wave of firings of low-level bank employees for ancient minor legal problems wasn’t what they had in mind.  From the Des Moines Register:

U.S. Sen. Chuck Grassley, R-Ia., said the way the new rules are being applied goes against legislative intent and undermines the federal government’s credibility with citizens. The low-level firings are even more problematic given the failure of the Obama administration to arrest even a single big bank executive for professional misconduct, he said.

“There’s a real disconnect between letting bank executives get away with malfeasance on the criminal front and regulations that lead to the firing of rank-and-file workers over minor infractions from decades ago that had nothing to do with bank fraud,” Grassley said.

That’s wonderful, Senator.  You guys wrote a stupid law, and now that it’s being enforced, you say you didn’t mean to do that.  It’s like if a logger tried his hand at surgery and things went predictably bad; “I didn’t mean to do that” wouldn’t cut it.  Yet you guys routinely take your legislative chainsaw to the economy, with horrific results like Dodd-Frank, and Section 409A.  Oh, you didn’t mean to do that.

 

Math is hard.   Harkin: The ‘47 percent’ pay higher tax rate than Romney.  True? False.

Nick Kasprak,  Some Nonpayers Do Pay Income Tax:

 

Robert D. Flach,  THE FAULT, DEAR READER, IS NOT IN OURSELVES, BUT IN OUR CONGRESS.  Of course, we elect them.

Matchmaker.  About the 47 Percent Who Don’t Pay Federal Income Tax: Mitt, Meet Andrea (Howard Gleckman, TaxVox)

Dan Shaviro,  Don’t know much about history

 

Jack Townsend, DOJ Tax Budget Request:  Promo Piece with Some Statistics

Linda Beale,  Are lower taxes on “savings” good for the economy?  Heritage, CRS and the “Matthew Effect”

News you can use:  Facing exorbitant higher education costs? Your Uncle Sam might be able to help  (Kay Bell).  Of course our Uncle Sam is a big part of why the costs are so high in the first place.

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Senator Grassley, you don’t know what you have unleashed.

Tuesday, June 14th, 2011 by Joe Kristan

You have gotten on the wrong side of Jr. Deputy Accountant:

The funny part about all of this is that somehow it always ends up back at the evil speculators and terrible Big Oil who has us by the throat. As if destroying our engines with a food item when folks are starving halfway around the world makes any sort of sense.

It may be too late for the Senator, but it may not be too late for the Senate.

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Bush-era rate extension bill clears Senate, 81-19.

Wednesday, December 15th, 2010 by Joe Kristan

The Senate this afternoon passed HR 4853, the train-wreck year-end tax bill, 81-19.
The bill extends the Bush-era top income tax rates at all levels, including the 35% rate for ordianry income and the 15% top rate for capital gains and dividends. It revives the estate tax at a 35% top rate with a $5 million lifetime exclusion. It also “patches” the AMT for 2010 and 2011 and extends dozens of special-interest tax breaks through next year, including the research credit and biofuel subsidies.
Iowa’s Senators split on the final bill. Senator Grassley voted for the bill, as expected, but Senator Harkin, who had voted yes on a key procedural vote on the bill, voted against final passage.
The Hill reports that a House vote is expected tomorrow.
UPDATE: Kay Bell has more.
Link:
BIll Text
Senate Roll Call
Prior Tax Update coverage:
True confession
2010 100% bonus depreciation, Extenders, $5 million portable gift-estate tax exemption in ‘Framework’ text

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True confession

Saturday, December 11th, 2010 by Joe Kristan

Chuck Grassley Press Release:

I fought tooth and nail to secure the inclusion of both the ethanol and biodiesel provisions in the new legislative proposal. There were efforts by some congressional majority Democrats and the White House to weaken the tax policy for these alternative fuels. In fact, the current congressional majority allowed the blenders

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Liquored up

Wednesday, February 17th, 2010 by Joe Kristan

The taxpayers will continue the accidental “black liquor” subsidy to the paper industry of $20 million per day until they get around to passing their “jobs” bill, thanks to a bipartisan deal struck between Senators Grassley and Baucus, reports Martin Sullivan.
Remember: bipartisanship is what happens when the Crips and Bloods run across an untended armored car at the same time.

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When they talk about a bill to save jobs, they mean their own

Friday, February 12th, 2010 by Joe Kristan

TaxVox reports:

Senate Finance Committee Chair Max Baucus (D-MT) and senior Republican Chuck Grassley (R-IA) today proposed a big new jobs bill. The centerpiece of the measure would exempt businesses that hire unemployed workers this year from the employer portion of the Social Security payroll tax.
Beyond that proposal, which is a somewhat different version of the hiring tax credit proposed earlier this month by President Obama, the Baucus/Grassley bill would do little more than extend or tinker with a potpourri of expiring tax breaks.

Of course, any targeted tax credit bill like this is doomed to fail; businesses hire because they need the employees to take care of their customers, not because Congress waves a few dollars at them. An empty order book trumps a tax credit.

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Because teachers are special

Friday, August 7th, 2009 by Joe Kristan

How idiotic are the negotiations among the Senate’s “gang of six” (including Senator Grassley)on health care “reform”? This much: ($link)

As the Senate adjourned for its summer recess August 6, a group of six Democratic and GOP taxwriters continued to work through the details of a healthcare reform proposal, and one senator said the group is considering exempting first responders and teachers from a potential tax on insurers that offer high-priced, “Cadillac” health plans.

So “Cadillac” plans are bad, unless teachers, policemen and firemen have them. What about, say, tollway workers, who have more dangerous jobs than any of these people? More importantly, where’s mine?
No good can come of this.
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The political uses of stupid

Friday, July 24th, 2009 by Joe Kristan

Martin Sullivan of tax.com on the proposal to finance health insurance destruction by taxing health insurance companies:

Armed with our understanding of simple economics we know there is no real difference between taxing the sellers or buyers of insurance. But a lot of people don’t. And there is a world of political difference — particularly in this Congress — between taxing unions and taxing big, bad insurance companies. Keep your eye on this trick. It may be just what the doctor ordered to break the logjam in the Finance Committee.

One hopes our wobbly Senator is smarter than that.

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Senate may be sane (if only by comparison)

Tuesday, March 24th, 2009 by Joe Kristan

It appears the Senate may not move as quickly to destroy the financial sector enact a punitive tax on TARP employee bonuses as the House did.
President Obama, after whipping up populist outrage against the AIG bonuses, hedged on the tax in his “60 Minutes” interview, and some Senate Democrats are having second thoughts, reports CQ Politics:

With two Republicans signed on as cosponsors, the legislation written by Baucus and Grassley could have a clear path through a Senate with 58 Democrats sitting in the majority.
But with a chunk of the Democratic Caucus remaining uncommitted to the legislation and some top Republicans vowing to slow it down, Democratic leaders would have a significant problem on their hands if they tried to push it forward.

All of this is disappointing to Senator Suicide:

Charles E. Grassley of Iowa, the committee

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Interest deduction for car buyers?

Wednesday, February 4th, 2009 by Joe Kristan

Like every stimulus bill, the current one promises to stimulate the tax preparation business. The Senate yesterday voted to add an above-the-line deduction for interest on loans to buy new cars.
Which only makes sense. The economic crisis was largely caused by reckless government-subsidized borrowing. Let’s do some more of that! Like so many other misguided tax subsidies, this would phase out at higher income levels, adding still more complexity to the tax law. But it will be just the ticket to enable some buyers to move up to a Lexis from a Toyota, which is what this country really needs.
To his credit, Senator Grassley opposed the bill. The TaxGrrrl has some more thoughts.

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Lead the way, Senator!

Thursday, October 2nd, 2008 by Joe Kristan

20081001-1.jpg
One of the perks of being a Senator appears to be breathtaking self-righteousness. Consider this from Senator Grassley:

Grassley insisted that Wall Street itself had an important role in a crisis that has focused more on Congress in the past week.
“I’ve suggested that it wouldn’t be a bad thing if the leadership of these investment banks and financial institutions and Fannie May and Freddie Mac would take a Japanese approach to corporate governance. And I’m not talking about going out and committing suicide,” Grassley, a Republican, told reporters during a morning conference call.
“The CEOs go before the board of the directors, before the public and before the stockholders and bow deeply and apologize for their mismanagement,” Grassley said.

That’s a great idea, Senator. And as a supreme moral leader, it would only be fitting for you and your fellow Congresscritters to set the right example. Senator Dodd and Congressman Frank could start by standing on the mall and undergoing a Cultural Revolution-style self-criticism for enabling and encouraging Fannie and Freddie to insolvency, and for being silent while their well-connected executives took fabulous salaries while shoveling cash to their campaign funds. They should then resign and join a Trappist monestary, living out the rest of their days in silence while they contemplate and atone for their deeds while sparing us any further legislative mastery. In fact, all of Fannie’s favorites could do some bowing and scraping.
Senator Grassley, a member of the taxwriting committees since the 1980s, could then step up to the platform to apologize, along with all of his taxwriting colleagues, for continuing to encourage overinvestment and overleveraging in the housing market through expansion of tax incentives for home ownership, home speculation, and mortgage borrowing.
Then, once the congresscritters who have made all of this possible stand up and take their own responsibility, then by all means bring on the executives. By then the crowd should be about out of eggs and tomatoes.

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AND THAT WOULD BE DIFFERENT…HOW?

Thursday, October 25th, 2007 by Joe Kristan

“We are looking at a filing fiasco come April 15th,” said Charles E. Grassley (Iowa), the ranking Republican on the Senate Finance Committee. “That is unacceptable.”

-Senator Charles Grassley, speaking of the need for Congress to act on an “AMT Patch” to kick the massive expansion of the alternative minimum tax back one more year, as quoted by the Washington Post.

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