Convert c corp to s corp accounts receivable. Shifting receivables between S corps. Before You Decide to Convert LLC to S Corp Feb 1, 2023 · LLC vs S Corp. 1, 2007, when it has accounts receivable of $100,000 for services rendered before that date. A cash basis calendar year C corporation in Athens, Georgia, has $100,000 of accounts receivable on the date of its conversion to an S corporation on February 14. On his individual income tax return for year 1, A deducted the entire $50,000 capital loss and reduced his basis in his Corp stock to zero. The significant reduction in the corporate tax rate (from 35% to 21%) brought about by the law known as the Tax Cuts and Jobs Act of 2017 (TCJA), P. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. Liability Protection. Dec 5, 2018 · If you are considering making the change since S society to C corp understand the article for Gray, Gray & Gry Manager Venice Touze, MST promulgated in The Tax Adviser. Short-term activity ratio. Old S immediately makes an election to be a qualified sub chapter S subsidiary, and so Old S will be disregarded for tax purposes When a C corporation that used the cash receipts and disbursements method of accounting makes an S election, the application of the Built-In-Gains Tax under Code Section 1374 may be simple and clear, but a surprise may be lurking around the corner and raise its ugly head as the C years’ accounts receivables are collected during the Sep 1, 2020 · One popular transaction that could emerge is Sec. My understanding is ""Retained C Corp earnings. On the day you convert to the S corporation, your C corporation has patients, customers, or clients who have not paid their bills. Description. I have a new client who has been a schedule C historically, and due to writing off asset basis before paying off related debt, they have negative equity. File the S corporation return (Form 1120-S) by the due or extended due date. However, to be effective on the 1st day of the corporation’s taxable year, the corporation must revoke its S election by the 15th day of the 3rd month of that tax year. They are using quickbooks. Under the rule of IRC Sec. Will be 100% owned by sole proprietor. The fair market value of accounts receivable is usually the face value of the 2. C’s share of D’s tax loss for the year is $80. Apr 17, 2024 · File IRS Form 2553. Contact us at 888-472-4455 to schedule a free consultation or pre-qualify now for business financing! Computing the Tax on Built-in Gains. 69. The initial Form 1120-S return filing will finalize the change of the entity's filing requirement on the Internal Revenue Service's records. C-corp is how they're formed, how they're taxed and their ownership restrictions. $35,000 Answer c. Requirements of filing of IRS Form 2553 include: Form being signed by all the shareholders. 65,863. is incorrect Salaries a BIG Offset. 2018 - 44 confirms that eligible terminated S corporations required to make a change from a cash - basis accounting method to an accrual - basis accounting method for tax reporting purposes as a result of the revocation of its S corporation election, and that makes the change in accounting method under Section 15. Draft a merger agreement between the LLC and the newly formed C corp. Most of the time, these accounts are tracked to determine the tax effect of distributions made by an S corporation that was formerly a C corporation. Step 4. Can C elect S status to avoid conversion to the accrual method? If C elects S status for its 2017 tax year, it will not be required to convert from the cash method of accounting. As illustrated, the C corporation results in slightly greater tax savings than the S corporation. The formula for the accounts receivable turnover in days is as follows: Receivable Turnover in Days = 365 / Receivable Turnover Ratio. 14. The date for submitting and form canned be don latter than two months Mar 24, 2006 · 03-25-2006, 08:06 AM. It isn't the same business, so the start up financial data is not "from day 1" of the business. All shareholders must sign the form. The tax can be spread over four years. Accounting; Trade Business; Taxes In May 2013 Treasury issued final regulations under Sec. 2 It also is imposed on an S corporation that has always been an S corporation, if it acquires assets from a C corporation in a tax-free transaction, such as an acquisition of assets in a Dec 1, 2016 · The corporation projects that its accounts receivable balance at Dec. The estate or beneficiary of the decedent would have a basis in the S corporation stock of $800,000 ($1M – 200,000 IRD). $21,000 d. How on Convert LLC go S Company or C Corp. Feb 1, 2022 · Example 1: A is the 100% shareholder of Corp, which is an S corporation. $0. 1374. Since your basis in the receivables is zero, the corporation's basis in the receivables it receives from you Nov 2, 2022 · That’s why we’ll walk you through each step to make sure it’s done right the first time, following important IRS rules. F or closely held corporations that still have C status, 1 the current uncertain economic A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14. 2. For an S corporation, the death of a . 1363 (d), the C corporation must report taxable income equal to the LIFO recapture Feb 1, 2022 · In general, if a shareholder gratuitously forgives debt owed by a corporation, the transaction constitutes a contribution to the capital of the corporation to the extent of the principal of the debt (Regs. 2018 Nov 1, 2015 · This first part covers the Up-C's basic structure and how it is implemented, contrasting it to a conventional conversion of a partnership to a C corporation and showing how a tax receivable agreement (TRA) coupled with an Up-C can provide even greater value to the original partners (legacy partners). Therefore, the average customer takes approximately 51 days to Oct 4, 2021 · For some background, per 2015 IRS statistics, an S-corporation is the most popular form of business entity (excluding sole proprietorships). The Tax Court held that taxpayers could increase the basis of their stock in an S corporation by contributing accounts receivable to it after they had received those receivables in a distribution from a related S corporation. The A corporation using the cash method elects to become an S corporation effective Jan. Accounts payable increase $13,000Accounts receivable increase 4,000Accrued Nov 1, 2023 · The adjusted cost basis is $8,000. C corporation earnings and profits (E&P) is not reported in any of the Schedule M-2 accounts. 481(d)(1) requires an eligible terminated S corporation to Jun 6, 2017 · Until recently, owners of C Corporations who converted to S Corporations had to wait ten years until the build-in-gains (BIG) tax period lapsed to sell company assets and not pay taxes twice. An LLC may also elect for S-corp or C-corp tax status. The main difference between an S-corp vs. 35 = 65,863 ÷ 2,500. " Oct 24, 2023 · An S corp has a different management structure than a C corp. C corporations that use last-in, first-out (LIFO) inventories must pay tax on the benefits they derived by using LIFO if they convert to S corporations. When a corporation has undistributed E&P, this is viewed, for 8. So that if the accounts receivables had a fair market value of $10,000 at the time of transfer it would result in a built-in gain for the S corporation of $10,000. In summary, both S Corps and C Corps are types of corporations with varying taxation and ownership distinctions. System; Business Intelligence & Data Analytics; Gamble & IT Compliance. Aug 19, 2019 · Quick Numbers: $100,000 in net income saves you $5,000. to C corp. C subsequently contributes the debt to D. LLC members pay self-employment taxes. Instead, as of the date the entity becomes an S Corp, the company must separately track the C Corp and S Corp income. By the end of the year, $70,000 of these receivables is collected. C-corp. 108(e)(6), if C contributes the receivable to the capital of Z Corp. 1. It does not have to use accrual accounting. Now, because of the conversion, they pay those monies to the S corporation, which collects them as built-in gain receivables subject to the double tax. $10,400 Under Prop. $2,100 c. Contact us for help on how to navigate the conversion for C Corp to S Corp! Email Phone Fee Info Consult Portal Chat. The timing since submitting the form can be no next than two months the 15 Oct 29, 2020 · Accounts receivable financing is a type of asset-financing arrangement in which a company uses its receivables — outstanding invoices or money owed by customers — as collateral in a financing Mar 26, 2019 · The C Corp is a distribution business with inventory, accounts receivable, and accounts payable. Mail; 249-501-4834; Phone; Text We; Registration As of July 1st the S corporation has an installment contract with $200,000 of remaining unreported installment sales gain. Contact about for help on how to navigate that conversion of C Corp to S Corp! Sep 7, 2022 · S-corp vs. A C-corp is subject to corporate tax rates and has no The S corporation inversion is accomplished by having the shareholders of the S corporation (“Old S”) transfer their stock to a newly formed S corporation (“New S”) in exchange for all the stock of New S. $28,000. While a C corp has a board of directors that shareholders appoint to manage the operation, an S corp is managed by its shareholders Mar 1, 2022 · For a partnership, the death of a partner can lead to tax issues involving the close of a partnership's tax year with respect to the deceased partner, a possible change in the partnership's year end, post-death allocation of income, Sec. Sep 8, 2023 · The basic steps of creating an S corp are: Step 1: Choose a name for the business, and make sure no other business entities exist that are using the same name. The steps include: Form a new C corporation. The main difference between a C-corp and an S-Corp is that a C-corp is subject to double taxation, which means that the corporation must file IRS Form 1120 Dec 1, 2018 · For an eligible terminated S corporation required to convert to the accrual method as a result of its S corporation election revocation, as soon as the IRS accepts the change of accounting method, the taxpayer will be required to account for the change over a set period of time. File the form with the Internal Revenue Service (IRS) to change the tax election. Apr 1, 2021 · Corporate repayment of loans owed to an S corporation shareholder reduces the shareholder's basis in such loans. If a US entity converts from C corporation status to S corporation status (taxable to nontaxable), the IRS will impose a tax on any “built-in gains” recognized on sales of assets that occur within five years following the conversion date. Calculate any built-in gains tax, assuming that there is sufficient taxable income Jan 4, 2021 · Here are four issues to consider: LIFO inventories. Consulting. 00. Our S Corp Tax Return guide will introduce you to the process of filing Form 1120-S for your S corp. increases basis. 115-97, has many S corporations considering Dec 3, 2018 · For an eligible terminated S corporation required to convert to the accrual method as a result of its S corporation election revocation, as soon as the IRS accepts the change of accounting method, the taxpayer will be required to account for the change over a set period of time. $0 b. This submission should be made within two months and 15 days from the start of the tax year when the change is intended to be effective, as outlined in IRC Section 1362(b). Will a change to S Corp also require a change from accrual to cash basis? Will a change to S Corp also require a change from accrual to cash basis? Nov 3, 2020 · S corporation accounting is generally similar to C corporation accounting. 1 This Code subsection allows taxpayers to elect to treat a corporation’s sale of at least 80% of its stock in a subsidiary as a sale of the subsidiary’s assets, with a result comparable to a Sec. Choosing the right business structure depends on the nature, size, and goals of the 26. The FMV of the S corporation’s stock at the date of death is $1M. Microsoft Corp. Join Greg White, CPA, as he takes a deep dive into the cost of converting a C May 13, 2024 · The first trap occurs if any of the LLC’s members have negative tax capital account balances (i. The tax attributes of the distribution are generally determined as if the distribution had been made in cash. By the end of the year, $40,000 of these receivables have been collected. New one for me this year. Dec 1, 2020 · The built - in gains (BIG) tax generally applies to C corporations that make an S corporation election, and it can be assessed during the five - year period beginning with the first day of the first tax year for which the S election is effective. In color, the profits you earn in an S corp are rated separately. This template computes the tax on built-in gains imposed by IRC Sec. 754 elections, and Sec. 1367(b)(2), C’s basis in the debt is reduced by $30 (excess of C’s share of D loss over C’s adjusted basis in D stock). However, as a physician's dividend income increases, the S corporation eventually becomes more favorable. Client is converting to S-Corporation, and my hunch is that assets need to be contributed at FMV resulting Sep 12, 2023 · One of the most distinctive features of a C corp is the concept of double taxation. Momentary, saving Entry 2553 is the only requirement to convert from a C corp to einem S corp. Then I would enter the asset into the S-Corp with a value of 0, with the date in service being the date the S-Corp began. , an LLC member with a An S corporation can distribute property (as well as cash) to its shareholders. Calculate any built-in-gains tax, assuming that there is sufficient taxable income. The tax is triggered by the disposition of assets that were on hand at the time the S election became effective and on that date had a fair market value in Mar 13, 2023 · Thine LLC has is established for a while, and things are going well. By the end of the year, $60,000 of these receivables are collected. , the LLC’s liabilities are greater than the tax basis of the LLC’s assets) at the time of the Conversion, in which case such members will recognize taxable income equal to the negative tax capital account balance (i. The one thing I've not been able to wrap my mind around is the built-in gains tax and accounts receivable. To convert to an S-corp, you will need to file IRS Form 2553. Then, if those profits are distributed to shareholders as dividends, the shareholders also pay taxes on those dividends at their individual tax rates. A revocation filed after the 15th day of the 3rd month of the tax year Total Tax Savings. An LLC’s profits and claims get straight through to the owners the are taxed as part of yours income. Oct 18, 2021 · Contact us used help on how to steer the conversion from C Corp to S Corp! Print Phone Fee Info Consults Portal Chat. 336 (e) and 338 (h) (10) both allow taxpayers to Sep 21, 2021 · Reading your web link to thebalancesmb. An activity ratio calculated as cost of goods sold divided by inventory. File the form include the Internal Revenue Service (IRS) to change the tax election. Regarding potential business structures, should you convert LLC to S corp or C corp? AICPA search advice on adjustments for conversions from SOUTH corp. Anyone care to explain to me how this will work in my case? Converting from a C corporation to a limited liability company (LLC) can also eliminate double taxation; however, for federal tax purposes, it involves liquidating the corporation and can result in tax liability at the corporate and shareholder levels. Skip go content 1 (781) 407-0300 [email protected] May 9, 2024 · S corporations. Editor: Michael D. If, at any point during the S corporation’s tax year, the aggregate balance of the open account debt exceeds $10,000, it is treated in the same way as debt evidenced by a note. would be deemed to have satisfied the liability for $25,000 (C's adjusted tax basis), and would realize Steps till Convert a C Firm to an S Corporation. How into Convert LLC to S Society or C Corp Mar 13, 2023 · Whats is an S Corp? Into S corp is a business structure that is how like an LLC but for taxation special. Therefore, your net savings is about $3,700 annually ($5,000 minus $800 minus $500). Mar 13, 2023 · It’s type to make a change, but you’re facing multiple options. Aug 1, 2022 · Any asset acquired after conversion is not subject to a built-in gains tax unless there is a carryover basis from a C corporation. The increased basis in their stock in the first S corporation If you have an unincorporated business and use the cash method of accounting, your adjusted basis in unrealized (uncollected) accounts receivable (if you had any) when you transfer them to a corporation in a Section 351 exchange is zero. 108 (e) (6), the key provision in the present discussion, further provides that if a debtor corporation acquires Mar 4, 2024 · How to File an S Corp Tax Return. $21,000. 481(d)(1) requires an eligible terminated S corporation to With the help of a professional or CPA, for federal tax purposes, the simple requirement to convert a C corporation to an S corporation is filing Form 2553 with the IRS. Good savings for very little additional effort from you. For the tax election to have effect for the full year, the form may be filed anytime in the previous year until Stride 97, 0751. Dec 5, 2018 · Converting from S corp to C corp. inventory turnover ratio deteriorated from 2021 to 2022 but then improved from 2022 to 2023 exceeding 2021 level. Your gain have increased steadily over the years, and so has your self-employment tax bill. e. There are other factors to take into account. C corporations that elect S status are often subject to the built-in gains (BIG) tax under IRC § 1374. , Z Corp. Technology. Tax professionals working in the S corporation environment regularly track earnings and profits (E&P) and the accumulated adjustments account (AAA) for their clients. S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. You can choose into become an employee by the SEC corp, be paid a If an S corporation has $100 in the bank and that $100 is transferred to the new business owner, then $100 of the sales price is going to be allocated to cash, which is not subject to any special taxation rules. The form must be submitted within two months and 15 days past the beginning of the May 3, 2024 · Step 3. It can also use cash accounting or hybrid accounting if those methods are more suitable. $10,500 c. For my corp, I am the only shareholder. Currently, filing Form 2553 is the only requirement to convert from a C corp to an S corp. Mar 31, 2011 · - Accounts receivable as of Dec 31 2010 are around $170,000 - Accounts receivable at the end of 2011 should be around $150,000 We meet all the requirements to convert to an S corp. Form a new C corporation by filing articles of incorporation with the state. $0 c. The LLC has more advantages because there is more flexibility compared to a corporation structure. 2 = 50. File the form with aforementioned Internal Revenue Service (IRS) in change of tax election. , a cash basis calendar year C corporation in Savannah, Georgia, has $100,000 of accounts receivable on the date of its conversion to an S corporation on February 14. com, in transferring a fully depreciated furniture item from the schedule C to the S-Corp, I would dispose of it listing the day before the S-Corp began. File the last C corporation return (Form 1120) by the due date or extended due date. 01 of Rev. Stages to Convert a C Corporation to an S Corporation. " That's fine. Feb 22, 2016 · Shareholders of a C corporation that want to change it to a pass-through entity generally have two alternatives: (1) convert the C corporation to a limited liability company taxed as a partnership (or a disregarded entity in the case of a single owner), or (2) elect to treat the C corporation as an S corporation (assuming the requirements for S Oct 29, 2019 · Here’s a quick rundown of four issues to consider: LIFO Inventories. 368 (a) (1) (F) reorganizations (F reorganizations) of S corporations. Mar 12, 2024 · This process involves forming a new C corporation and then merging the LLC into that new entity. CPE Credit: 2 hours for CPAs. By the end of the year, $70,000 of these receivables are collected. An S corp's income and expenses and the nature of different kinds of income and expenses will be reported at the company level. Only regular C Sep 8, 2023 · The BIG tax is computed by applying the current 21% corporate tax rate to the S corp’s built-in gain for the year. A built-in gain represents the excess of the fair market value over the tax basis Jun 30, 2010 · They said that the S corporation's adjusted basis in the accounts receivable transferred from the cash basis partnership would be $0. Step 2: File articles of incorporation with the state, including the corporation’s name, address, purpose, primary activities, and the owner’s name. This cost must be weighed against the potential tax gains from converting to S status. All members must sign the form. Sec. Calculate any built-in gains tax, assuming that there is sufficient taxable income. Regarding potential business business, should you convert LLC to SOUTH corporate or C corp? What is an S Corp? There are potentially many HUNDRED Corp toward S Corp potential. Line 8 of Schedule M-2 for all three columns DOES NOT have to tie in with Schedule L equity. These represent money that customers owe the Aug 1, 2017 · Editor: Anthony S. $8,400 d. S corporations are not the same as a business entity. The classification of an entity for tax purposes as partnerships (LLCs, LPs, GPs, and other entities) generally has advantages over S-corporations. For instance, an S corporation For example, say you operate your C corporation on the cash basis. Whole shareholders shall sign the form. Jan 1, 2014 · Integral to determining the taxability of an S corporation’s distributions are two shareholder-level attributes—stock basis and previously taxed income—and two corporate-level attributes—earnings and profits (E&P) and the accumulated adjustments account (AAA). If you were already carrying this information on an LLC’s balance sheet, then there might be some other entries to true things up. This tax generally applies to C corporations that elected S status after 1986. Koppel, CPA, PFS, CITP, MBA (Retired Partner) December 1, 2018. 743 adjustments, among other things. 4 Built-in gains. It’s time to make a change, but you’re facing multiple options. with a $25,000 adjusted tax basis because of $75,000 in losses passed through from Z Corp. If you have an S corporation (S corp), you’ll need to file Form 1120-S, a five-page form that details your company’s income, deductions, tax and payments, and other important information. b. Bakale, CPA. An S corporation might have accounts receivable, notes receivable, or tax receivable. In the end, you can have a funded C Corp with a new retirement plan — and your own business. A cash basis calendar year C corporation reports $50,000 of accounts receivable on the date of its conversion to S status on March 1. The tax is imposed upon an S corporation that has some history—however brief—as a C corporation before the effective date of its S corporation election. Jan 1, 2024 · Steps to Convert a C Corporation to an S Corporation. $24,500 d Mar 13, 2023 · March 13, 2023. S Corps are attractive for their pass-through taxation, while C Corps offer more flexibility in terms of ownership structure and stock classes. While there are many benefits to converting, C corp to S corp Example: X, a C corporation that converts to an S corporation, has inventory with a FIFO LCM value of $100 million and a LIFO value of $75 million at the conversion date. $ 4,000. These earnings are referred to as C corporation earnings and profits, or E&P for short. 2,500. Email; 719-387-9800; Phone; Fee Info; Consult C has a $100,000 receivable from Z Corp. If property is distributed, the amount of the distribution is considered to be the property’s fair market value (FMV) (Sec. 61 - 12 (a)). By Venice Touze, MST. Determining the accounts receivable turnover in days for Trinity Bikes Shop in the example above: Receivable turnover in days = 365 / 7. 1367-2 (a) (2) (ii), the shareholder must maintain a daily running log to account for the open account debt. Statement of Cash Flows (Indirect Method) Use the following information regarding the Surpa Corporation to (a) prepare a statement of cash flows using the indirect method and (b) compute Surpa’s operating‑cash‑flow‑to‑current‑liabilities ratio. First, the corporation itself is taxed on its profits. Aug 14, 2013 · On Schedule L of its 2005 California tax return, appellant indicated that, as of January 1, 2005, it had accounts receivable totaling $1,788,197 and accounts payable totaling $414,621. X determines by valuation analysis that the FMV of the inventory is $115 million. In year 1, Corp had $50,000 in capital losses, and A had an adjusted basis of $20,000 in his Corp stock. It can be treated as a corporation, partnership, or sole proprietorship . However, when basis in a shareholder's loan has been reduced by passthrough losses, repayment of the loan is a taxable event to the extent full repayment exceeds the shareholder's basis in the debt, or to the extent partial repayments exceed a pro rata portion of the basis in the S Corporations Part 1: Converting C Corps to S Corps (Currently Unavailable) S Corporations Part 1: Converting C Corps to S Corps. Tax Manager. Mar 11, 2021 · "The balance sheet also has Accounts Receivable while the business is on the cash basis. Let's review a few points: The transition to S Corp would be an "as of this date" event for Balance Sheet. $12,600 b. A cash basis calendar year C corporation in Athens, Georgia has $100,000 of accounts receivable on the date of its conversion to an S corporation on Feb. c. WCG (formerly Watson CPA Group) charges $800 per year for payroll and about $450 to $600 for the S Corp tax return (Form 1120S). 338 (h) (10) election. Congress created S corporation status in 1958. The company. Secs. For a C-corporation to transition to an S-corporation, it must promptly submit the IRS Form 2553. An LLC is created for federal tax purposes under state law. Regs. L. While S corporation status provides tax benefits such as corporate income and gains being taxed only once, at the individual level, it is subject to several limitations. The federal taxes paid on the C corporation taxable income is reflected in E&P and does not show up on the Schedule M-2, so don't put it For federal tax purposes, the only requirement that is set forth to convert a C corporation to an S corporation is completing and filing Form 2553 with the IRS to change the tax election. 2 hours Federal Tax Related for EAs and OTRPs. Where a C Corp has built up profits which have not been distributed, the C Corp cannot avoid double taxation by converting to an S Corp. Apr 15, 2022 · The default tax classification for corporations is C-corp status, but a corporation may elect for S-corp status by filing with the IRS. Merger agreement. The journal entry would be a debit to equipment for $28,000, a credit to accumulated depreciation for $20,000 and a credit of $8,000 to Additional Paid-In Capital. Apr 26, 2016 · Let’s consider the following example: ABC, an S corporation, has approximately $200,000 of C corporation accumulated earnings from years preceding its election to be taxed as an S corporation. Currently, storing Form 2553 is the only requirement to convert off ampere C corp to on S corp. Requirements regarding the completion and filing of IRS Form 2553 include that: The signed form must be submitted to the IRS no later than two months and 15 Dec 1, 2018 · Proc. Under Sec. Voluntary Revocation: A corporation can convert from an S corporation to a C corporation at any time. Dividends of $71,741, instead of $62,500 in this example would result in equal tax savings. Proc. 2 hours Federal Tax Law for CTEC. On that date, the accounts receivable have a fair market value of $95,000 and an adjusted basis of zero. Inventory turnover. $ 3,732. a. 31, 2016, will be $350,000 and that its accounts payable will be about $50,000. Mar 15, 2023 · For example, say your LLC contributes $50,000 in assets (cash, inventory, accounts receivable) and $70,000 in liabilities (accrued expenses, debts). Mar 20, 2023 · C corporations that use LIFO inventories have to pay tax on the benefits they derived by using LIFO if they convert to S corporations. 301 (b)). Failure to fully grasp the role each plays in determining the taxability of a Apr 13, 2023 · Turkey Corp. 5-Apr-2021 4:04pm. Partnerships often provide more planning flexibility than C’s basis in his D stock is $50. One of the aspects of the BIG tax that can be a trap for the unwary is the treatment of accounts receivable for cash-basis corporations. Cybersecurity; Internal Audit Oct 25, 2023 · How to Make an S-Corporation Election. 336 (e). Author: Greg White. jzcusvsmxhxnfetyuqyq
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