25.1.8  Field Collection

Manual Transmittal

July 11, 2013

Purpose

(1) This transmits a revised IRM 25.1.8, Fraud Handbook, Field Collection.

Material Changes

(1) IRM 25.1.8.2 (2)(a) - An editorial change was made to correct the (a) as it was left blank.

Effect on Other Documents

This material supersedes IRM 25.1.8, dated 04-22-2011.

Audience

Criminal Investigation (CI), Small Business/Self-Employed (SB/SE)

Effective Date

(07-11-2013)

Signed by Scott Reisher
Director, Collection Policy, SE:S:ECS:CP
Small Business/Self-Employed Division

25.1.8.1  (02-14-2013)
Overview

  1. Field Collection (FC)is an important cross-functional partner in the detection and referral of fraud issues. The very nature of collection work lends itself to numerous areas of potential fraudulent noncompliance. The following sections highlight some of the fraudulent areas encountered in varying degrees by revenue officers (ROs). Refer to IRM Sections 25.1.1 through 25.1.4 for detailed guidance in developing indications of fraud and completing the fraud referral process. Of particular value to ROs are the sections devoted to IRM 25.1.2, IRM 25.1.3, and IRM 25.1.7 respectively. , ROs could also refer to National Fraud Program Standard Operating Procedures, Document # 12722, for invaluable assistance in recognizing and developing fraud in the collection arena.

25.1.8.2  (07-11-2013)
Trust Fund Violations

  1. A substantial part of FC's work involves unpaid payroll taxes, under-reported payroll taxes, and delinquent Form 941 returns. Many of these cases involve prior quarters and current quarter pyramiding, multiple business entities, or a string of similar defunct businesses. When investigating cases involving unpaid payroll taxes, ROs should look for potential indicators of fraud, such as:

    1. Concealment, false statements or false documents;

    2. Abusive tax avoidance schemes regarding payroll;

    3. Unusual business practices (such as requesting certain sources of income to pay by cash or other questionable ethos) which serve to circumvent normal bookkeeping practices;

    4. Disorganized or non-existent payroll records;

    5. Taxpayer paying business and personal expenses in cash when cash payments are not customary;

    6. The owner/officers have a standard of living or lifestyle that is inconsistent with reported income;

    7. Use of nominees (wife, partner, relatives, friends, other business entities) to shield business or personal assets;

    8. Business owner/officer is evasive, uncooperative, belligerent, threatening or attempts to interfere with the duties of the revenue officer (RO); and/or

    9. A history of non-compliance by the officers including previous entities with unpaid payroll tax liabilities.

      Note:

      Refer to IRM 25.1.2.3Indicators of Fraud for a expanded list of fraud indicators on trust fund an other types of cases involving potential fraud.

  2. When initial indicators of fraud are identified and the taxpayer's noncompliance exceeds the criminal criteria, ROs should consider the potential for:

    1. Pursuit of IRC 7202, Willful Failure to Collect or Pay Over Tax;

    2. Pursuit of IRC 7201, Attempt to Evade or Defeat Tax;

    3. Pursuit of IRC 7206(1), False Tax Return, and

    4. Civil Injunction

    Note:

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    Note:

    IRC 7201, 7202 and 7206(1) are felonies. Refer to IRM 25.1.1Overview/Definitions for a list of criminal violations and the elements necessary for prosecution.

  3. The RO will discuss the case with the group manager. If the group manager concurs with the fraud potential, the RO should contact the fraud technical advisor (FTA).

    Note:

    Many of the elements associated with establishing proof of responsibility and willfulness are similar to those in a trust fund recovery penalty (TFRP) investigation. Therefore, ROs should continue to conduct TFRP investigations when warranted. However, ROs should be careful not to pursue potential TFRP assessments if indicators of fraud have been identified. ROs should discuss any proposed TFRP assessment with the group manager and local FTA when indicators of fraud have been established.

  4. Since IRC 7201, IRC 7202, and IRC 7206(1) prosecutions require the government to establish that responsible persons knew of their tax responsibilities and willfully failed to perform them, Letter 903 should be issued early in the development of the case. Although Letter 903 is primarily a warning of the potential for additional enforcement actions, it also provides specific instructions and a notice of personal responsibility to the potentially responsible individuals.

    Note:

    Consider issuance of the Letter 903 when pursuing any of the remedies listed in 25.1.8.2(2). Letter 903 should be issued early in the development of any employment tax case where an indication of fraud is present.

  5. Letter 903 is issued when levy sources have been exhausted and the repeater or pyramiding taxpayer has no assets in resolving or offsetting the liability. In cases where criminal charges are pursued based on the failure to adhere to the reporting and payment requirements, use Form 2797, Referral Report of Potential Fraud Cases. See IRM 5.7.2.4, Referrals For Criminal Enforcement. . In cases where only civil sanctions (e.g., an injunction under IRC 7402(a)) are contemplated, see IRM 5.7.2.3Referrals For Civil Enforcement.

  6. The RO will advise the group manager and follow guidelines for making a criminal referral (IRM 25.1.3) or civil referral (IRM 5.17.4.17).

    Note:

    Note that IRM 5.17.4.17.1 has not been updated since 2010 and continues to refer to Treas. Reg. § 31.6011(a)-5 and to Form 941M and to special deposit procedures that are no longer used.

  7. ROs will monitor the taxpayer's actions and keep the group manager and CI informed while the case is in fraud referral status.

  8. If the taxpayer has previously abandoned other business ventures, leaving unpaid and uncollectible tax liabilities, it may be appropriate to seek a civil injunction to stop further pyramiding. Consult with the FTA and local SBSE Counsel when dealing with this situation.

25.1.8.3  (02-14-2013)
Evasion of Payment

  1. IRC 7201 includes two separate offenses:

    1. the willful attempt to evade or defeat the assessment of a tax; and

    2. the willful attempt to evade or defeat the payment of a tax.

    Refer to Exhibit 25.1.1-1 for a description of the elements necessary for prosecution of an IRC 7201 violation. The affirmative acts of evasion associated with evasion of payment cases almost always involve some form of concealment of the taxpayer’s ability to pay the tax due and owing or the removal of assets from the reach of the IRS. It should be noted that refusing to pay taxes due, possession of the funds needed to pay the taxes, and even the open assignment of income, without more, do not meet the requirement of the affirmative acts necessary for this felony evasion charge.

  2. In addition to the affirmative acts/indicators listed in IRM 25.1.2.2Fraud Development Procedures, other examples of affirmative acts of evasion of payment include:

    • placing assets in the names of others;

    • dealing in currency when payment of currency is not a standard business practice;

    • causing receipts to be received through and in the name of others;

    • causing debts to be paid through and in the name of others;

    • paying creditors instead of the government;

    • bankrupting a corporation and hiding the assets to avoid payment of employment taxes; and

    • a complete change of taxpayer identity.

    See IRM 25.1.8.4 for examples of indications of fraud relating to false statements under penalty of perjury, i.e., Form 433-A and Form 433-B.

    Note:

    If someone other than the taxpayer completed and signed the Form 433-A or 433-B, the RO will need to take additional steps to substantiate perjury. Contact the local FTA for assistance.

  3. When initial indications of fraud are identified, the RO will discuss the case with the group manager. If the group manager concurs with the fraud potential, contact the FTA.

25.1.8.4  (02-14-2013)
Fraudulent Offers In Compromise

  1. IRM 5.8.10.10Indicators of Taxpayer Fraud provides a comprehensive discussion of indications of potential fraud warning signs most identifiable during an interview relating to Offers in Compromise.. In addition to those indications of fraud, taxpayer should be alert to the potential for false statements under penalty of perjury, i.e., relating to Form 433-A and Form 433-B. Examples of these include, but are not limited to:

    1. False or fraudulent valuation statements or appraisals in support of Form 433-A or Form 433-B;

    2. Sham loans and mortgages;

    3. Significant omission or asset undervaluation;

    4. Understated income;

    5. Overstated expenses;

    6. Large number of claimed dependents;

    7. Similar amounts in both checking and savings accounts (e.g. $100 or $1000);

    8. No available credit;

    9. Similar listings for monthly income and expenses (e.g. same low wages, same child care expenses), and

    10. Reclassification of wage income.

  2. When indicators of potential fraud arise during an offer investigation, the offer specialist (OS) will follow guidelines outlined in IRM 5.8.4.16Potential Fraud Referrals.

  3. Open criminal investigations can be identified on IDRS by an unreversed TC 914, TC 916, or TC 918. Cases with a TC 910 are being monitored by Criminal Investigation. When these transaction codes are discovered, contact must be made with the assigned Special Agent and procedures in IRM 5.1.5 must be followed. It may be necessary for the group manager to contact the Supervisory Special Agent (SSA) to determine the next appropriate action. A decision will need to be made on the appropriate actions to take and what may or may not be discussed with the taxpayer.

    Note:

    CI should be advised of the TIPRA law (Tax Increase Prevention and Reconciliation Act), which includes a provision for automatic acceptance of the offer if the IRS does not reject it within 24 months of the received date.. We can no longer hold offers open indefinitely pending criminal investigation.

    Note:

    IRM 5.8.4.17 (1) & (2) discusses the guidelines the Offer Specialist will follow with Open Criminal Investigations.

  4. Once a taxpayer has been advised of the open criminal investigation, if the assigned Special Agent has no objection, the taxpayer may be asked to withdraw the offer until the criminal matter is resolved. If the taxpayer declines to withdraw the offer, the OS will return the offer to the taxpayer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted." If the Special Agent objects to asking the taxpayer to withdraw the offer or contacting the taxpayer, remind the Special Agent of the 24 month mandatory acceptance requirement. If the Special Agent continues to request that the taxpayer not be contacted, reassign the case on AOIC to 9999. Monitor the case and contact the Special Agent monthly to determine if and when taxpayer contact can be made. If, after 6 months from the IRS received date, CI has not made a decision about taxpayer contact, return the offer under the criterion "other investigations are pending that may affect the liability sought to be compromised or the grounds upon which it was submitted."

  5. If the referral is accepted, CI will inform the taxpayer of the fraud investigation.

25.1.8.5  (02-13-2013)
Statute of Limitations

  1. The criminal statute of limitations must be taken into consideration when developing a case for fraud. It is generally six years for tax offenses.

  2. Issues regarding limitations statutes should be discussed with the FTA during the initial stages of fraud development.

  3. Refer to the Department of Justice (DOJ)Criminal Tax Manual on Statute of Limitations which includes a reference table on the Limitations Periods for Common Tax Offenses. This Criminal Tax Manual can be found at the following website: http://www.justice.gov/tax/readingroom/2008ctm/CTM%20Chapter%207%20SOL.htm

25.1.8.6  (02-14-2013)
Summons Referral

  1. In most instances, summons enforcement will be conducted as an IRC 7604 civil matter, through SBSE Area Counsel, and is directed toward requiring the person summoned to comply (see IRM 25.5.10).

    Note:

    IRC 7602(d) does not allow a summons to be issued or enforced concerning any person if a DOJ referral has been made by the IRS for such person. IRC 7602(d)(2) defines a "referral" as either an IRS recommendation to DOJ for tax related grand jury investigation or criminal prosecution of the taxpayer or a criminal investigation request from DOJ made to the IRS pursuant to IRC 6103(h)(3)(B). See IRM 5.1.5.10, Administrative Summons.

  2. Criminal prosecution under IRC 7210 for failure to obey a summons is rarely utilized and should be considered only after review of IRM 5.17.6, relating to criminal proceedings and civil enforcement, and consultation with SBSE Area Counsel.

25.1.8.7  (02-14-2013)
Coordination with Criminal Investigation

  1. Where CI case controls (TC 914) are active in any module, ROS will contact CI to discuss potential problems prior to initiating contact with taxpayers or their representatives (see IRM 5.1.5Balancing Civil and Criminal Cases.

  2. When balancing civil and criminal priorities, consider the impact and/or lost revenue potential relating to:

    1. Trust Fund Recovery Penalty and Transferee assessment statute expiration dates (ASED);

    2. Collection Statute Expiration Dates (CSED);

    3. Pyramiding of collected or withheld taxes, and

    4. Collection jeopardy.

    Note:

    If a Trust Fund Recovery Penalty investigation has begun and the Letter 1153(DO) has already been issued to the potentially responsible officer prior to the commencement of the criminal investigation, Collection must notify CI that the letter has been issued, explain the appeal rights the taxpayer has as a result of the notification (See IRM 5.7.6.1.3), and determine the best course of action.

  3. Refer to IRM 5.1.5 and Policy Statement P4-26 (IRM 1.2.13.1.11) when evaluating the need for concurrent civil and criminal investigations. IRM 5.1.5 includes detailed information on required coordination efforts between CI and Collection in parallel investigations.

    Note:

    If the civil and criminal investigations are conducted simultaneously, close coordination and communication is necessary among all functions. Contact the FTA and Area Counsel for appropriate coordination and procedures.

  4. If an ASED or CSED is within one year of expiring, and there is agreement between CI and Collection to allow a statute to expire because of the ongoing criminal investigation, the revenue officer will secure Form 10498-C, Intent to Commerce or Continue Civil Action - Collection Statute Protection. The forms are used to document agreement between CI and Collection regarding what, if any, actions should be taken to protect the ASED or CSED, or to acknowledge agreement that the statute should be allowed to expire and that CI plans to input a TC 914 on the account. In order for either form to be effective, joint approval must be indicated by the appropriate CI Special Agent in Charge and Field Collection Territory Manager. Follow the procedures set forth in IRM 5.1.5.3 to resolve any disagreements between Collection and CI regarding the commencement or continuation of civil collection actions to protect the applicable statue of limitations. Coordination with CI is unnecessary in those cases where Collection has decided to allow the ASED to expire due to the lack of collection potential and the Territory Manager has agreed.

  5. Prior to the expiration of the statute, the RO should document the ICS history with a summarizing statement that contains the specific MFT, tax period, amount, ASED/CSED and facts to support the decision to allow the statute to expire. The RO will obtain the appropriate managerial concurrence, and input any necessary transaction codes (such as an ASED-R indicator).

  6. If a cooperating RO is needed for a joint investigation, quarterly four-way meetings should be conducted to review the status of the investigation and plan activities to be accomplished by the cooperating officer and special agent in the next quarter. The CI SSA should initiate contact with the FC group manager to schedule required quarterly four-ways (See IRM 1.4.50, Resource Guide for Managers). If the CI SSA does not make contact, FC group manager should initiate contact to schedule the required four-way conference if deemed necessary. See IRM 25.1.4Administrative Joint Investigation for joint investigation procedures.

    Note:

    Please refer to IRM 5.1.5.3, for guidance in resolving any disagreements between civil and criminal priorities.

25.1.8.8  (02-14-2013)
Aging of Collection Fraud Cases

  1. Upon concurrence of the fraud technical advisor (FTA), the RO will complete Form 11661-A, Fraud Development Status.

  2. The RO and FTA should identify any significant related entities with open modules that would relate to the development of the potential fraud case, identify them on the Form 11661-A and request assignment of all identified related entities to avoid action being taken on these cases that could harm a future criminal investigation.

  3. After approval of Form 11661-A by the FTA, the group manager or their designee, will input ICS subcode 910 FRAUD DEVELOPMENT - FTA to the case..The ICS subcode 910 will automatically trigger input of IDRS Transaction Code (TC) 971 with Action Code (AC) 281 on the entity . The TC 971 AC 281 will stop the cycle clock and prevent the taxpayer entity from being included in systemic IDRS/Entity case aging reports.

    Caution:

    Subcode 910 and TC 971 AC 281 are not modular specific. TC 971 AC 281 can be found under IDRS command code ENMOD.

    Note:

    Although case aging is stopped during the pendency of the fraud development case, it is necessary to continue to take timely and effective case actions designed to move the case forward.

  4. When the case is no longer in fraud development status or FTA involvement is withdrawn, the manager will be notified and will remove the subcode 910 FRAUD DEVELOPMENT - FTA to the case.. When removing the subcode 910, answer "yes" on ICS when asked, "Is TC 972 AC 281 required to re-start the overage clock." This will automatically trigger the input of TC 972 AC 281 to IDRS.

    Caution:

    Do not mark “No” to this question, as the case will still appear on the 910 Report despite the removal of the subcode 910.

    Exception:

    Cases that require ICS subcodes for time charging purposes will not be updated to ICS subcode 910 when FTA assistance is present and will remain with the specialty assignment. These include specialty assignments such as ATAT - ICS subcode 309 - 339 and Offers in Compromise - ICS subcode 106.

  5. Prior to removing the case from fraud development status, the RO must ensure that the subcode 910 and the TC 971 AC 281 has been reversed. To check for an unreversed TC 971 AC 281, take the following steps:

    1. From the case summary screen select "Entity Detail"

    2. Select item "View Entity Transactions"

    3. A listing of the Entity Transactions on the case will appear and scroll through to check for any unreversed TC 971 AC 281.

  6. The use of TC 971 AC 281 has been expanded to include:

    1. Abusive Tax Avoidance Transactions (ATAT) cases - ICS subcodes 309 to 339.

      Note:

      See IRM 5.20.2.3Abusive Tax Avoidance Transactionsfor more information on the appropriate use of TC 971 AC 281.

      Caution:

      ATAT cases in fraud development - It is important to enter "FRD" for fraud on the location block on ICS. This will include the case in the Area fraud report. If "FRD" is not input on the location block, the case will not be counted in the Area fraud report. See IRM 5.20.2.3(5)(c)Aging of ATAT and Suit Development Cases.

    2. Suit development cases where additional time is needed to analyze and gather the facts necessary for developing a suit recommendation.

      Note:

      See IRM 25.3.2Suits by the United Statesfor more information on the appropriate use of TC 971 AC 281.

    3. Procedures must be followed with the corresponding IRMs on the appropriate use of TC 971 AC 281 for ATAT and Suit development.

25.1.8.9  (02-14-2013)
Collection Case Disposition

  1. When the RO, FC group manager, and FTA agree that a firm indication of fraud has been established and criminal criteria has been met, a Form 2797, Referral Report of Potential Criminal Fraud Cases, will be completed and all collection activity will be discontinued until further advice from CI is received. See IRM 25.1.3.

  2. When a tax loss computation is needed to support the fraud referral, the FTA will assist the RO in pursuing a collateral referral or securing Exam assistance. Procedures for requesting a collateral referral can be found in IRM 4.1.4.3.20.

  3. Refer to IRM 5.1.11.6.2 for instructions relating to disposition of Delinquent Return investigations (DEL RET’s). Do not use TC 596 to close BMF DEL RET modules.

    Note:

    Refer to (6) below for instructions on removing ICS subcode 910.

  4. Careful consideration should be given to any imminent ASED or CSED statutes that could expire during the CI investigation. Refer to IRM 25.1.8.7 and consider the need for parallel proceedings if necessary.

    Note:

    Statute expirations should be addressed prior to transferring the case to Centralized Case Processing (CCP) for monitoring.

  5. CI will initiate the input of TC 914 controls to control the cases accepted for criminal investigation. If TC 914 is present in some tax periods, but not in others, ROs should contact CI to determine whether or not collection should be suspended and additional TC 914’s should be initiated by CI. It is recommended that the RO contact their local FTA for assistance with this process.

  6. When the TC 914 is posted to all assigned tax modules, the FC group manager will remove the ICS subcode 910 and reverse TC 971 AC 281. The RO must document the ICS history with an appropriate closing narrative that addresses any imminent statutes. If a statute will be allowed to expire during the pendency of the criminal investigation, refer to IRM 25.1.8.7(4) and secure approval for the appropriate form.

    Note:

    Subcode 910 should only be used for cases in potential fraud development, up to the point of time when CI makes their determination to either accept or decline a fraud referral. See IRM 25.1.8.8(4) Aging of Collection Fraud Cases.

  7. If a determination is made that some type of civil action should be taken while the criminal case is active and CI agrees with the proposed civil action, the RO should create an OI and follow the procedures in IRM 5.1.5.2 for parallel investigations. The RO should input subcode 912 on the case in ICS. Subcode 912 should be used when a case has been accepted by CI and additional collection actions are necessary. Subsequent actions may include Joint or Parallel Investigations, Statute Control, Probation/Parole, or Post-Sentencing Compliance.

  8. If the fraud referral is declined by CI, the RO, FC group manager and FTA should conduct a post-declination meeting to discuss the criminal referral and possible alternative means of civil closure such as referring the case to Examination for consideration of civil fraud penalties.

    Note:

    The RO must document the ICS history about the post-declination meeting and any consideration on referring the case to Examination.

25.1.8.10  (02-14-2013)
Monitoring Cases Under Criminal Investigation

  1. If the TC 914 appears on all modules and a decision has been made to suspend all civil enforcement activities on the case, CCP will assume monitoring responsibilities for the case.

  2. Cases where an ASED or CSED will expire within one year will not be transferred to CCP without first obtaining managerial approval from CCP. See IRM 5.1.8.1.5.1(4), which prohibits the transfer of an account in this situation unless managerial approval is obtained from the receiving office.

    Note:

    See IRM 5.7.3.8 for procedures for reporting the expiration of the TFRP statute and IRM 5.1.19.8 for procedures for imminent CSEDs, as well as the process outlined in IRM 25.1.8.7(4) to document agreement between CI and Collection to allow the expiration of an imminent statute due to ongoing criminal investigative actions.

  3. To transfer the case to CCP, first verify that all modules have a TC 914 input (for cases with delinquent return only periods, follow the procedure in IRM 5.1.11.6.2.1(2)).

    Note:

    If TC 914 is present in some tax periods, but not in others, RO should contact CI to determine whether or not collection should be suspended and additional TC 914’s should be initiated by CI.

  4. Once TC 914 is on all balance due modules, notify the group manager to remove the ICS subcode 910; if there is no subcode 910, ensure that the entity TC 971 AC 281 is reversed via input of a TC 972 AC 281 (or use ICS options:"Collection Activities" , "FTA Involvement" , "Generate TC 972 AC 281" ).

  5. Create an incoming OI on the ICS case; this incoming OI will be included in the case transfer to CCP and will be used by CCP for monitoring and control procedures:

    • From the ICS summary screen, select "Collection Activities" ,

    • Select "Create Modules" ,

    • Select "OI in" ,

    • For the initial assignment, use the originator's (primary RO) assignment number,

    • In the "Action Requested" field, select "Other" ,

    • In the "Remarks" field, insert "181 CID Control" ,

    • Select "save" .

  6. Once you have created the OI, transfer the entire ICS case to CCP as follows:

    • From the ICS summary screen, select "Collection Activities" ,

    • Select "Transfer" ,

    • Select "Transferee Office Requests Transfer" ,

    • At "Enter Receiving Assignment Number" insert 35766979,

    • At the ICS prompt, "Open CIP/OI/FTD Assigned to originator # (which is primary). Include these items in transfer action?" "Y/N?" select "Y" ,

    • When prompted, "do you want a Form 3210 to print for this transfer?" select Yes,

    • Insert a note in the remarks section of the Form 3210 TC 914 Monitoring,

    • The case will show approval pending until the Group Manager approves the transfer.

  7. Once approved, send your closed case file marked "914" with the Form 3210 to:

    Internal Revenue Service – Attn.: TC 914 Monitoring

    2970 Market Street

    MS 5-E-04, 114

    Philadelphia, PA 19104

  8. Upon case receipt, CCP will ensure the input of the STAUP 91 on all modules in status 26 which have a TC 914.

  9. CCP will monitor the case, including any CSED or TFRP ASED statute issues, while the criminal investigation is pending and issue any necessary OIs to the field.

    Note:

    If the above outlined procedures are not followed, the case transfer will be rejected back to the originator for corrective action.

  10. CCP will issue OIs to the field for issues requiring field assistance or investigation during the pendency of the criminal investigation in the following instances:

    • Two-year collection risk analysis (e.g., collectibility determination, continued noncompliance, status of CI investigation),

    • CSED protection,

    • ASED protection for potential TFRP assessments,

    • Lien refiling determinations,

    • New balance due modules that need TC 914 input or parallel investigation

      Note:

      Do not close new balance due modules with TC 530 CC 12 (unable to contact) or TC 530 CC 03 (unable to locate). Follow the procedures outlined in IRM 25.1.8.7 and IRM 5.1.5.1.

  11. When the criminal investigation is completed, CI prepares a Form 13308Criiminal Investigation Closing Report (Tax ad Tax related only), and forwards the form and other documents, as appropriate, to Technical Services (Exam) and Advisory (Collection). If the closing report relates to a case that has been referred to CCP for monitoring, Advisory will, within 10 business days of the receipt of the Form 13308, either (1) route a copy of the Form 13308 to CCP, or (2) make an ICS history entry noting that CI has closed the case and the method of closure. CCP will return cases to the assigned field group if further collection action is needed.


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