Instructions for Form 1120 & 1120-A |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Use Form 1120, U.S. Corporation Income Tax Return, or Form 1120-A, U.S. Corporation Short-Form Income Tax Return, to report
the income, gains,
losses, deductions, credits, and to figure the income tax liability of a corporation.
Unless exempt under section 501, all domestic corporations (including corporations in bankruptcy) must file an income tax
return whether or not
they have taxable income. Domestic corporations must file Form 1120 or, if they qualify, Form 1120-A, unless they are required
to file a special
return. See Special Returns for Certain Organizations below.
Limited liability companies.
If an entity with more than one owner was formed as a limited liability company (LLC) under state law, it generally
is treated as a partnership for
federal income tax purposes and files Form 1065, U.S. Return of Partnership Income. Generally, a single-member LLC is disregarded
as an entity
separate from its owner and reports its income and deductions on its owner's federal income tax return. The LLC can file a
Form 1120 or Form 1120-A
only if it has filed Form 8832, Entity Classification Election, to elect to be treated as an association taxable as a corporation.
For more
information about LLCs, see Pub. 3402, Tax Issues for Limited Liability Companies.
Corporations engaged in farming.
A corporation (other than a corporation that is a subchapter T cooperative) that engages in farming should use Form
1120 or, if they qualify, Form
1120-A, to report the income (loss) from such activities. Enter the income and deductions of the corporation according to
the instructions for lines 1
through 10 and 12 through 29 (lines 12 through 25 of Form 1120-A).
Ownership interest in a Financial Asset Securitization Investment Trust (FASIT).
Special rules apply to a FASIT in existence on October 22, 2004, to the extent that regular interests issued by the
FASIT before October 22, 2004,
continue to remain outstanding in accordance with their original terms.
If a corporation holds an ownership interest in a FASIT to which these special rules apply, it must report all items
of income, gain, deductions,
losses, and credits on the corporation's income tax return (except as provided in section 860H). Show a breakdown of the items
on an attached
schedule. For more information, see sections 860H and 860L.
A corporation may file Form 1120-A if it met all of the following requirements during the tax year.
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Its gross receipts (line 1a on page 1) are under $500,000.
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Its total income (line 11 on page 1) is under $500,000.
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Its total assets (Item D on page 1) are under $500,000.
-
Its only dividend income is from domestic corporations and those dividends (a) qualify for the 70% dividends-received deduction
and (b) are
not from debt-financed securities.
-
It does not owe alternative minimum tax.
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It does not have any of the “write-in” additions to tax listed in the instructions for Schedule J, line 2 or line 10.
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It has no nonrefundable tax credits other than the general business credit.
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It is not:
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A member of a controlled group,
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A personal holding company,
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Filing a consolidated return,
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Electing to forego the entire carryback period for any NOL, or
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Required to file one of the returns listed under Special Returns for Certain Organizations.
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It does not have:
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Any ownership in a foreign corporation or foreign partnership,
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Foreign shareholders that directly or indirectly own 25% or more of its stock, or
-
Any ownership in, or transactions with, a foreign trust.
Electronic Filing (Form 1120 Only)
Corporations can generally electronically file (efile) Form 1120, related forms, schedules, and attachments, Form 7004, Form 940 and 941
employment tax returns. If there is a balance due, the corporation can authorize an electronic funds withdrawal while efiling.
Form 1099 and other
information returns can also be electronically filed.
However, the option to efile does not apply to certain returns, including:
-
Returns with a name change,
-
Returns with precomputed penalty and interest,
-
Returns with reasonable cause for failing to file timely,
-
Returns with reasonable cause for failing to pay timely, and
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Returns with request for overpayment to be applied to another account.
Required filers.
Certain corporations with total assets of $10 million or more that file at least 250 returns a year are required to
efile Form 1120. See
Temporary Regulations section 301.6011-5T. However, these corporations can request a waiver of the electronic filing requirements.
See Notice 2005-88,
2005-48 I.R.B. 1060.
Visit
www.irs.gov/efile for details.
Special Returns for Certain Organizations
Instead of filing Form 1120 or Form 1120-A, certain organizations, as shown below, have to file special returns.
If the organization is a: |
File Form |
▼ |
▼ |
Exempt organization with unrelated trade or business income
|
990-T |
Religious or apostolic organization exempt under section 501(d)
|
1065 |
Entity formed as a limited liability company under state law and treated as a partnership for federal income tax
purposes
|
1065 |
Cooperative association (including a subchapter T cooperative)
|
1120-C |
Entity that elects to be treated as a real estate mortgage investment conduit (REMIC) under section 860D
|
1066 |
Interest charge domestic international sales corporation (section 992)
|
1120-IC-DISC |
Foreign corporation (other than life and property and casualty insurance company filing Form 1120-L or Form 1120-PC)
|
1120-F |
Foreign sales corporation (section 922)
|
1120-FSC |
Condominium management, residential real estate management, or timeshare association that elects to be treated as a homeowners
association under section 528
|
1120-H |
Life insurance company
(section 801)
|
1120-L |
Fund set up to pay for nuclear decommissioning costs (section 468A)
|
1120-ND |
Property and casualty insurance company
(section 831)
|
1120-PC |
Political organization
(section 527)
|
1120-POL |
Real estate investment trust (section 856)
|
1120-REIT |
Regulated investment company (section 851)
|
1120-RIC |
S corporation (section 1361)
|
1120S |
Settlement fund
(section 468B)
|
1120-SF |
File the corporation's return at the applicable IRS address listed below.
If the corporation's principal business, office, or agency is located in:
|
And the total assets at the end of the tax year (Form 1120, page 1, item D) are:
|
Use the following Internal Revenue Service Center address:
|
Connecticut, Delaware, District of Columbia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New
Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West
Virginia, Wisconsin
|
Less than $10 million
$10 million or more
|
Cincinnati, OH 45999-0012
Ogden, UT 84201-0012
|
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota,
Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Tennessee, Texas,
Utah, Washington,
Wyoming
|
Any amount
|
Ogden, UT 84201-0012
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A foreign country or U.S. possession
|
Any amount
|
P.O. Box 409101
Ogden, UT 84409
|
A group of corporations with members located in more than one service center area will often keep all the books and records
at the principal office
of the managing corporation. In this case, the tax returns of the corporations may be filed with the service center for the
area in which the
principal office of the managing corporation is located.
Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. A
new corporation filing a
short-period return must generally file by the 15th day of the 3rd month after the short period ends. A corporation that has
dissolved must generally
file by the 15th day of the 3rd month after the date it dissolved.
If the due date falls on a Saturday, Sunday, or legal holiday, the corporation can file on the next business day.
Private Delivery Services
Corporations can use certain private delivery services designated by the IRS to meet the “timely
mailing as timely filing/paying” rule for tax returns and payments. These private delivery services include only the following.
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DHL Express (DHL): DHL Same Day Service, DHL Next Day 10:30 am, DHL Next Day 12:00 pm, DHL Next Day 3:00 pm, and DHL 2nd Day
Service.
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Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, and
FedEx
International First.
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United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide
Express Plus,
and UPS Worldwide Express.
The private delivery service can tell you how to get written proof of the mailing date.
Private delivery services cannot deliver items to P.O. boxes. You must use the U.S. Postal Service to mail any item to an
IRS P.O. box address.
Extension of Time To File
File Form 7004, Application for Automatic 6-Month Extension of Time To File Certain Business Income Tax, Information, and
Other Returns, to request
a 6-month extension of time to file. Generally file Form 7004 by the regular due date of the return.
The return must be signed and dated by:
-
The president, vice president, treasurer, assistant treasurer, chief accounting officer; or
-
Any other corporate officer (such as tax officer) authorized to sign.
If a return is filed on behalf of a corporation by a receiver, trustee, or assignee, the fiduciary must sign the return,
instead of the corporate
officer. Returns and forms signed by a receiver or trustee in bankruptcy on behalf of a corporation must be accompanied by
a copy of the order or
instructions of the court authorizing signing of the return or form.
If an employee of the corporation completes Form 1120 or Form 1120-A, the paid preparer's space should remain blank. Anyone
who prepares Form 1120
or Form 1120-A but does not charge the corporation should not complete that section. Generally, anyone who is paid to prepare
the return must sign it
and fill in the “Paid Preparer's Use Only” area.
The paid preparer must complete the required preparer information and:
Note.
A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.
Paid Preparer Authorization
If the corporation wants to allow the IRS to discuss its 2006 tax return with the paid preparer who signed it, check the “Yes” box in the
signature area of the return. This authorization applies only to the individual whose signature appears in the “Paid Preparer's Use Only” section
of the return. It does not apply to the firm, if any, shown in that section.
If the “Yes” box is checked, the corporation is authorizing the IRS to call the paid preparer to answer any questions that may arise
during
the processing of its return. The corporation is also authorizing the paid preparer to:
-
Give the IRS any information that is missing from the return,
-
Call the IRS for information about the processing of the return or the status of any related refund or payment(s), and
-
Respond to certain IRS notices about math errors, offsets, and return preparation.
The corporation is not authorizing the paid preparer to receive any refund check, bind the corporation to anything (including
any additional tax
liability), or otherwise represent the corporation before the IRS.
The authorization will automatically end no later than the due date (excluding extensions) for filing the corporation's 2007
tax return. If the
corporation wants to expand the paid preparer's authorization or revoke the authorization before it ends, see Pub. 947, Practice
Before the IRS and
Power of Attorney.
To ensure that the corporation's tax return is correctly processed, attach all schedules and other forms after page 4, Form
1120 (or page 2, Form
1120-A), and in the following order.
-
Schedule N (Form 1120).
-
Schedule O (Form 1120).
-
Form 4626.
-
Form 8050.
-
Form 4136.
-
Form 851.
-
Additional schedules in alphabetical order.
-
Additional forms in numerical order.
Complete every applicable entry space on Form 1120 or Form 1120-A. Do not enter “See Attached” instead of completing the entry spaces. If more
space is needed on the forms or schedules, attach separate sheets using the same size and format as the printed forms. If
there are supporting
statements and attachments, arrange them in the same order as the schedules or forms they support and attach them last. Show
the totals on the printed
forms. Enter the corporation's name and EIN on each supporting statement or attachment.
Depository Methods of Tax Payment
The corporation must pay any tax due in full no later than the 15th day of the 3rd month after the end of the tax year. The
two methods of
depositing taxes are discussed below.
Electronic Deposit Requirement
The corporation must make electronic deposits of all depository taxes (such as employment tax, excise tax, and corporate income
tax) using the
Electronic Federal Tax Payment System (EFTPS) in 2007 if:
-
The total deposits of such taxes in 2005 were more than $200,000 or
-
The corporation was required to use EFTPS in 2006.
If the corporation is required to use EFTPS and fails to do so, it may be subject to a 10% penalty. If the corporation is
not required to use
EFTPS, it can participate voluntarily. To enroll in or get more information about EFTPS, call 1-800-555-4477. To enroll online,
visit
www.eftps.gov.
Depositing on time.
For EFTPS deposits to be made timely, the corporation must initiate the transaction at least 1 business day before
the date the deposit is due.
If the corporation does not use EFTPS, deposit corporation income tax payments (and estimated tax payments) with Form 8109,
Federal Tax Deposit
Coupon. If you do not have a preprinted Form 8109, use Form 8109-B to make deposits. You can get this form by calling 1-800-829-4933
or visiting an
IRS taxpayer assistance center. Have your EIN ready when you call or visit.
Do not send deposits directly to an IRS office; otherwise, the corporation may have to pay a penalty. Mail or deliver the
completed Form 8109 with
the payment to an authorized depositary (a commercial bank or other financial institution authorized to accept federal tax
deposits). Make checks or
money orders payable to the depositary.
If the corporation prefers, it can mail the coupon and payment to: Financial Agent, Federal Tax Deposit Processing, P.O. Box
970030, St. Louis, MO
63197. Make the check or money order payable to “Financial Agent.”
To help ensure proper crediting, enter the corporation's EIN, the tax period to which the deposit applies, and “Form 1120” on the check or
money order. Darken the “1120” box under “Type of Tax” and the appropriate “Quarter” box under “Tax Period” on the coupon. Records
of these deposits will be sent to the IRS. For more information, see “Marking the Proper Tax Period” in the instructions for Form 8109.
For more information on deposits, see the instructions in the coupon booklet (Form 8109) and Pub. 583, Starting a Business
and Keeping Records.
If the corporation owes tax when it files Form 1120 or Form 1120-A, do not include the payment with the tax return. Instead,
mail or deliver the
payment with Form 8109 to an authorized depositary, or use EFTPS, if applicable.
Generally, the following rules apply to the corporation's payments of estimated tax.
-
The corporation must make installment payments of estimated tax if it expects its total tax for the year (less applicable
credits) to be
$500 or more.
-
The installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year. If any date falls on a Saturday,
Sunday, or
legal holiday, the installment is due on the next regular business day.
-
Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to compute estimated tax.
-
If the corporation does not use EFTPS, use the deposit coupons (Forms 8109) to make deposits of estimated tax.
-
If the corporation overpaid estimated tax, it may be able to get a quick refund by filing Form 4466, Corporation Application
for Quick
Refund of Overpayment of Estimated Tax.
See the instructions for lines 32b and 32c, Form 1120 (lines 28b and 28c, Form 1120-A).
Estimated tax penalty.
A corporation that does not make estimated tax payments when due may be subject to an underpayment penalty for the
period of underpayment.
Generally, a corporation is subject to the penalty if its tax liability is $500 or more and it did not timely pay the smaller
of:
See section 6655 for details and exceptions, including special rules for large corporations.
Use Form 2220, Underpayment of Estimated Tax by Corporations, to see if the corporation owes a penalty and to figure
the amount of the penalty.
Generally, the corporation does not have to file this form because the IRS can figure the amount of any penalty and bill the
corporation for it.
However, even if the corporation does not owe the penalty, complete and attach Form 2220 if:
-
The annualized income or adjusted seasonal installment method is used, or
-
The corporation is a large corporation computing its first required installment based on the prior year's tax. See the Instructions
for Form
2220 for the definition of a large corporation.
Also, see the instructions for line 33, Form 1120 (line 29, Form 1120-A).
Interest.
Interest is charged on taxes paid late even if an extension of time to file is granted. Interest is also charged on
penalties imposed for failure
to file, negligence, fraud, substantial valuation misstatements, substantial understatements of tax, and reportable transaction
understatements from
the due date (including extensions) to the date of payment. The interest charge is figured at a rate determined under section
6621.
Late filing of return.
A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the
unpaid tax for each month or part
of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a return that is over 60
days late is the smaller of
the tax due or $100. The penalty will not be imposed if the corporation can show that the failure to file on time was due
to reasonable cause.
Corporations that file late should attach a statement explaining the reasonable cause.
Late payment of tax.
A corporation that does not pay the tax when due generally may be penalized ½ of 1% of the unpaid tax for each month
or part of a
month the tax is not paid, up to a maximum of 25% of the unpaid tax. The penalty will not be imposed if the corporation can
show that the failure to
pay on time was due to reasonable cause.
Trust fund recovery penalty.
This penalty may apply if certain excise, income, social security, and Medicare taxes that must be collected or withheld
are not collected or
withheld, or these taxes are not paid. These taxes are generally reported on:
-
Form 720, Quarterly Federal Excise Tax Return;
-
Form 941, Employer's QUARTERLY Federal Tax Return;
-
Form 943, Employer's Annual Federal Tax Return for Agricultural Employees; or
-
Form 945, Annual Return of Withheld Federal Income Tax.
The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to have been responsible
for collecting, accounting
for, and paying over these taxes, and who acted willfully in not doing so. The penalty is equal to the unpaid trust fund tax.
See the Instructions for
Form 720, Pub. 15 (Circular E), Employer's Tax Guide, or Pub. 51 (Circular A), Agricultural Employer's Tax Guide, for details,
including the
definition of responsible persons.
Other penalties.
Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements,
and fraud. See sections
6662, 6662A, and 6663.
Figure taxable income using the method of accounting regularly used in keeping the corporation's books and records. In all
cases, the method used
must clearly show taxable income. Permissible methods include cash, accrual, or any other method authorized by the Internal
Revenue Code.
Generally, the following rules apply.
-
A corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average
annual gross
receipts exceed $5 million.
-
Unless it is a qualifying taxpayer or a qualifying small business taxpayer, a corporation must use the accrual method for
sales and
purchases of inventory items. See page 13.
-
A corporation engaged in farming must use the accrual method. For exceptions, see section 447.
-
Special rules apply to long-term contracts. See section 460.
-
Dealers in securities must use the mark-to-market accounting method. Dealers in commodities and traders in securities and
commodities can
elect to use the mark-to-market accounting method. See section 475.
Change in accounting method.
To change the method of accounting used to report taxable income (for income as a whole or for the treatment of any
material item), the corporation
must file Form 3115, Application for Change in Accounting Method.
See Form 3115 and Pub. 538, Accounting Periods and Methods, for more information on accounting methods.
A corporation must figure its taxable income on the basis of a tax year. A tax year is the annual accounting period a corporation
uses to keep its
records and report its income and expenses. Generally, corporations can use a calendar year or a fiscal year. Personal service
corporations, however,
must use a calendar year unless they meet one of the exceptions discussed on page 6.
Change of tax year.
Generally, a corporation, including a personal service corporation, must get the consent of the IRS before changing
its tax year by filing Form
1128, Application To Adopt, Change, or Retain a Tax Year. However, under certain conditions, a corporation can change its
tax year without getting
consent.
See Form 1128 and Pub. 538 for more information on accounting periods and tax years.
Rounding Off to Whole Dollars
The corporation can round off cents to whole dollars on its return and schedules. If the corporation does round to whole dollars,
it must round all
amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39
becomes $1 and $2.50
becomes $3.
If two or more amounts must be added to figure the amount to enter on a line, include cents when adding the amounts and round
off only the total.
Keep the corporation's records for as long as they may be needed for the administration of any provision of the Internal Revenue
Code. Usually,
records that support an item of income, deduction, or credit on the return must be kept for 3 years from the date the return
is due or filed,
whichever is later. Keep records that verify the corporation's basis in property for as long as they are needed to figure
the basis of the original or
replacement property.
The corporation should keep copies of all filed returns. They help in preparing future and amended returns.
Other Forms and Statements That May Be Required
Amended return.
Use Form 1120X, Amended U.S. Corporation Income Tax Return, to correct a previously filed Form 1120 or Form 1120-A.
Reportable transaction disclosure statement.
Disclose information for each reportable transaction in which the corporation participated. Form 8886, Reportable
Transaction Disclosure Statement,
must be filed for each tax year that the federal income tax liability of the corporation is affected by its participation
in the transaction. The
corporation may have to pay a penalty if it is required to file Form 8886 and does not do so. The following are reportable
transactions.
-
Any listed transaction, which is a transaction that is the same as or substantially similar to tax avoidance transactions
identified by the
IRS.
-
Any transaction offered under conditions of confidentiality for which the corporation paid an advisor a fee of at least
$250,000.
-
Certain transactions for which the corporation has contractual protection against disallowance of the tax benefits.
-
Certain transactions resulting in a loss of at least $10 million in any single year or $20 million in any combination of years.
-
Certain transactions resulting in a tax credit of more than $250,000, if the corporation held the asset generating the credit
for 45 days or
less.
Penalties.
The corporation may have to pay a penalty if it is required to disclose a reportable transaction under section 6011
and fails to properly complete
and file Form 8886. The penalty is $50,000 ($200,000 if the reportable transaction is a listed transaction) for each failure
to file Form 8886 with
its corporate return or for failure to provide a copy of Form 8886 to the Office of Tax Shelter Analysis (OTSA). Other penalties,
such as an
accuracy-related penalty under section 6662A, may also apply. See the Instructions for Form 8886 for details.
Reportable transactions by material advisors.
Until further guidance is issued, material advisors who provide material aid, assistance, or advice with respect to
any reportable transaction,
must use Form 8264, Application for Registration of a Tax Shelter, to disclose reportable transactions in accordance with
interim guidance provided in
Notice 2004-80, 2004-50 I.R.B. 963; Notice 2005-17, 2005-8 I.R.B. 606; and Notice 2005-22, 2005-12 I.R.B. 756.
Transfers to a corporation controlled by the transferor.
If a person receives stock of a corporation in exchange for property, and no gain or loss is recognized under section
351, the person (transferor)
and the transferee must each attach to their tax returns the statements required by Temporary Regulations section 1.351-3T.
Dual consolidated losses.
If a domestic corporation incurs a dual consolidated loss (as defined in Regulations section 1.1503-2(c)(5)), the
corporation (or consolidated
group) may need to attach an elective relief agreement and/or an annual certification as provided in Regulations section 1.1503-2(g)(2).
Election to reduce basis under section 362(e)(2)(C).
The transferor and transferee in certain section 351 transactions can make a joint election under section 362(e)(2)(C)
to limit the transferor's
basis in the stock received instead of the transferee's basis in the transferred property. The transferor and transferee may
make the election by
attaching the statement as provided in Notice 2005-70, 2005-41 I.R.B. 694, to their tax returns filed by the due date (including
extensions) for the
tax year in which the transaction occurred. Once made, the election is irrevocable. See section 362(e)(2)(C) and Notice 2005-70.
Other forms and statements.
See Pub. 542 for a list of other forms and statements a corporation may need to file in addition to the forms and
statements discussed throughout
these instructions.
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