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26 U.S.C. § 1059 — Corporate shareholder’s basis in stock reduced by nontaxed portion of extraordinary dividends
Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** If any corporation receives any extraordinary dividend with respect to any share of stock and such corporation has not held such stock for more than 2 years before the dividend announcement date—
(1) **Reduction in basis** — The basis of such corporation in such stock shall be reduced (but not below zero) by the nontaxed portion of such dividends.
(2) **Amounts in excess of basis** — If the nontaxed portion of such dividends exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock for the taxable year in which the extraordinary dividend is received.
**(b) Nontaxed portion** For purposes of this section—
(1) **In general** — The nontaxed portion of any dividend is the excess (if any) of—
(A) the amount of such dividend, over
(B) the taxable portion of such dividend.
(2) **Taxable portion** — The taxable portion of any dividend is—
(A) the portion of such dividend includible in gross income, reduced by
(B) the amount of any deduction allowable with respect to such dividend under section 243 11 So in original. Probably should be followed by a comma. 245, or 245A.
**(c) Extraordinary dividend defined** For purposes of this section—
(1) **In general** — The term “extraordinary dividend” means any dividend with respect to a share of stock if the amount of such dividend equals or exceeds the threshold percentage of the taxpayer’s adjusted basis in such share of stock.
(2) **Threshold percentage** — The term “threshold percentage” means—
(A) 5 percent in the case of stock which is preferred as to dividends, and
(B) 10 percent in the case of any other stock.
(3) **Aggregation of dividends**
(A) *Aggregation within 85-day period* — All dividends—
(i) which are received by the taxpayer
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Source file: Laws/federal/codes/united-states-code/title-26/section-1059-corporate-shareholders-basis-in-stock-reduced-by-nontaxed-portion-of-ext--acc6c7c005.md
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Source location: Title 26, Chapter 1, § 1059; chapter-001-normal-taxes-and-surtaxes.md
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**(a) General rule** If any corporation receives any extraordinary dividend with respect to any share of stock and such corporation has not held such stock for more than 2 years before the dividend announcement date—
(1) **Reduction in basis** — The basis of such corporation in such stock shall be reduced (but not below zero) by the nontaxed portion of such dividends.
(2) **Amounts in excess of basis** — If the nontaxed portion of such dividends exceeds such basis, such excess shall be treated as gain from the sale or exchange of such stock for the taxable year in which the extraordinary dividend is received.
**(b) Nontaxed portion** For purposes of this section—
(1) **In general** — The nontaxed portion of any dividend is the excess (if any) of—
(A) the amount of such dividend, over
(B) the taxable portion of such dividend.
(2) **Taxable portion** — The taxable portion of any dividend is—
(A) the portion of such dividend includible in gross income, reduced by
(B) the amount of any deduction allowable with respect to such dividend under section 243 11 So in original. Probably should be followed by a comma. 245, or 245A.
**(c) Extraordinary dividend defined** For purposes of this section—
(1) **In general** — The term “extraordinary dividend” means any dividend with respect to a share of stock if the amount of such dividend equals or exceeds the threshold percentage of the taxpayer’s adjusted basis in such share of stock.
(2) **Threshold percentage** — The term “threshold percentage” means—
(A) 5 percent in the case of stock which is preferred as to dividends, and
(B) 10 percent in the case of any other stock.
(3) **Aggregation of dividends**
(A) *Aggregation within 85-day period* — All dividends—
(i) which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and
(ii) which have ex-dividend dates within the same period of 85 consecutive days,
shall be treated as 1 dividend.
(B) *Aggregation within 1 year where dividends exceed 20 percent of adjusted basis* — All dividends—
(i) which are received by the taxpayer (or a person described in subparagraph (C)) with respect to any share of stock, and
(ii) which have ex-dividend dates during the same period of 365 consecutive days,
shall be treated as extraordinary dividends if the aggregate of such dividends exceeds 20 percent of the taxpayer’s adjusted basis in such stock (determined without regard to this section).
(C) *Substituted basis transactions* — In the case of any stock, a person is described in this subparagraph if—
(i) the basis of such stock in the hands of such person is determined in whole or in part by reference to the basis of such stock in the hands of the taxpayer, or
(ii) the basis of such stock in the hands of the taxpayer is determined in whole or in part by reference to the basis of such stock in the hands of such person.
(4) **Fair market value determination** — If the taxpayer establishes to the satisfaction of the Secretary the fair market value of any share of stock as of the day before the ex-dividend date, the taxpayer may elect to apply paragraphs (1) and (3) by substituting such value for the taxpayer’s adjusted basis.
**(d) Special rules** For purposes of this section—
(1) **Time for reduction** — Any reduction in basis under subsection (a)(1) shall be treated as occurring at the beginning of the ex-dividend date of the extraordinary dividend to which the reduction relates.
(2) **Distributions in kind** — To the extent any dividend consists of property other than cash, the amount of such dividend shall be treated as the fair market value of such property (as of the date of the distribution) reduced as provided in section 301(b)(2).
(3) **Determination of holding period** — For purposes of determining the holding period of stock under subsection (a), rules similar to the rules of paragraphs (3) and (4) of section 246(c) shall apply and there shall not be taken into account any day which is more than 2 years after the date on which such share becomes ex-dividend.
(4) **Ex-dividend date** — The term “ex-dividend date” means the date on which the share of stock becomes ex-dividend.
(5) **Dividend announcement date** — The term “dividend announcement date” means, with respect to any dividend, the date on which the corporation declares, announces, or agrees to the amount or payment of such dividend, whichever is the earliest.
(6) **Exception where stock held during entire existence of corporation**
(A) *In general* — Subsection (a) shall not apply to any extraordinary dividend with respect to any share of stock of a corporation if—
(i) such stock was held by the taxpayer during the entire period such corporation was in existence, and
(ii) except as provided in regulations, no earnings and profits of such corporation were attributable to transfers of property from (or earnings and profits of) a corporation which is not a qualified corporation.
(B) *Qualified corporation* — For purposes of subparagraph (A), the term “qualified corporation” means any corporation (including a predecessor corporation)—
(i) with respect to which the taxpayer holds directly or indirectly during the entire period of such corporation’s existence at least the same ownership interest as the taxpayer holds in the corporation distributing the extraordinary dividend, and
(ii) which has no earnings and profits—
(I) which were earned by, or
(II) which are attributable to gain on property which accrued during a period the corporation holding the property was,
a corporation not described in clause (i).
(C) *Application of paragraph* — This paragraph shall not apply to any extraordinary dividend to the extent such application is inconsistent with the purposes of this section.
**(e) Special rules for certain distributions**
(1) **Treatment of partial liquidations and certain redemptions** — Except as otherwise provided in regulations—
(A) *Redemptions* — In the case of any redemption of stock—
(i) which is part of a partial liquidation (within the meaning of section 302(e)) of the redeeming corporation,
(ii) which is not pro rata as to all shareholders, or
(iii) which would not have been treated (in whole or in part) as a dividend if—
(I) any options had not been taken into account under section 318(a)(4), or
(II) section 304(a) had not applied,
any amount treated as a dividend with respect to such redemption shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held such stock. In the case of a redemption described in clause (iii), only the basis in the stock redeemed shall be taken into account under subsection (a).
(B) *Reorganizations, etc.* — An exchange described in section 356 which is treated as a dividend shall be treated as a redemption of stock for purposes of applying subparagraph (A).
(2) **Qualifying dividends**
(A) *In general* — Except as provided in regulations, the term “extraordinary dividend” does not include any qualifying dividend (within the meaning of section 243).
(B) *Exception* — Subparagraph (A) shall not apply to any portion of a dividend which is attributable to earnings and profits which—
(i) were earned by a corporation during a period it was not a member of the affiliated group, or
(ii) are attributable to gain on property which accrued during a period the corporation holding the property was not a member of the affiliated group.
(3) **Qualified preferred dividends**
(A) *In general* — In the case of 1 or more qualified preferred dividends with respect to any share of stock—
(i) this section shall not apply to such dividends if the taxpayer holds such stock for more than 5 years, and
(ii) if the taxpayer disposes of such stock before it has been held for more than 5 years, the aggregate reduction under subsection (a)(1) with respect to such dividends shall not be greater than the excess (if any) of—
(I) the qualified preferred dividends paid with respect to such stock during the period the taxpayer held such stock, over
(II) the qualified preferred dividends which would have been paid during such period on the basis of the stated rate of return.
(B) *Rate of return* — For purposes of this paragraph—
(i) *Actual rate of return* — The actual rate of return shall be the rate of return for the period for which the taxpayer held the stock, determined—
(I) by only taking into account dividends during such period, and
(II) by using the lesser of the adjusted basis of the taxpayer in such stock or the liquidation preference of such stock.
(ii) *Stated rate of return* — The stated rate of return shall be the annual rate of the qualified preferred dividend payable with respect to any share of stock (expressed as a percentage of the amount described in clause (i)(II)).
(C) *Definitions and special rules* — For purposes of this paragraph—
(i) *Qualified preferred dividend* — The term “qualified preferred dividend” means any fixed dividend payable with respect to any share of stock which—
(I) provides for fixed preferred dividends payable not less frequently than annually, and
(II) is not in arrears as to dividends at the time the taxpayer acquires the stock.
Such term shall not include any dividend payable with respect to any share of stock if the actual rate of return on such stock exceeds 15 percent.
(ii) *Holding period* — In determining the holding period for purposes of subparagraph (A)(ii), subsection (d)(3) shall be applied by substituting “5 years” for “2 years”.
**(f) Treatment of dividends on certain preferred stock**
(1) **In general** — Any dividend with respect to disqualified preferred stock shall be treated as an extraordinary dividend to which paragraphs (1) and (2) of subsection (a) apply without regard to the period the taxpayer held the stock.
(2) **Disqualified preferred stock** — For purposes of this subsection, the term “disqualified preferred stock” means any stock which is preferred as to dividends if—
(A) when issued, such stock has a dividend rate which declines (or can reasonably be expected to decline) in the future,
(B) the issue price of such stock exceeds its liquidation rights or its stated redemption price, or
(C) such stock is otherwise structured—
(i) to avoid the other provisions of this section, and
(ii) to enable corporate shareholders to reduce tax through a combination of dividend received deductions and loss on the disposition of the stock.
**(g) Regulations** The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations—
(1) providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions, in the case of stock held by pass-thru entities, and in the case of consolidated groups, and
(2) providing that the rules of subsection (f) shall apply in the case of stock which is not preferred as to dividends in cases where stock is structured to avoid the purposes of this section.
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Federal law — U.S. Code and appendices · legal_authorities
(1) For nonrecognition of gain in connection with the transfer of obsolete vessels to the Maritime Administration under chapter 573 of title 46, United States Code, see [section 57307 of title 46](https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title46-section57307&num=0&edition=prelim).
(2) For recognition of gain or loss in connection with the construction of new vessels, see chapter 533 of title 46, United States Code.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Deduction allowed** There shall be allowed as a deduction for the taxable year an amount equal to—
(1) in the case of a taxable year beginning before January 1, 2021, the aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year, and
(2) in the case of a taxable year beginning after December 31, 2020, the sum of—
(A) the aggregate amount of net operating losses arising in taxable years beginning before January 1, 2018, carried to such taxable year, plus
(B) the lesser of—
(i) the aggregate amount of net operating losses arising in taxable years beginning after December 31, 2017, carried to such taxable year, or
(ii) 80 percent of the excess (if any) of—
(I) taxable income computed without regard to the deductions under this section and sections 199A and 250, over
(II) the amount determined under subparagraph (A).
For purposes of this subtitle, the term “net operating loss deduction” means the deduction allowed by this subsection.
**(b) Net operating loss carrybacks and carryovers**
(1) **Years to which loss may be carried**
(A) *General rule* — A net operating loss for any taxable year—
(i) shall be a net operating loss carryback to the extent provided in subparagraphs (B), (C)(i), and (D), and
(ii) except as provided in subparagraph (C)(ii), shall be a net operating loss carryover—
(I) in the case of a net operating loss arising in a taxable year beginning before January 1, 2018, to each of the 20 taxable years following the taxable year of the loss, and
(II) in the case of a net operating loss arising in a taxable year beginning after December 31, 2017, to each taxable year following the taxable year of the loss.
(B) *Farming losses*
(i) *I
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
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Federal law — U.S. Code and appendices · legal_authorities
**(a)** When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof—
(1) **Person** — The term “person” shall be construed to mean an+d include an individual, a trust, estate, partnership, association, company or corporation.
(2) **Partnership and partner** — The term “partnership” includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust or estate or a corporation; and the term “partner” includes a member in such a syndicate, group, pool, joint venture, or organization.
(3) **Corporation** — The term “corporation” includes associations, joint-stock companies, and insurance companies.
(4) **Domestic** — The term “domestic” when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations.
(5) **Foreign** — The term “foreign” when applied to a corporation or partnership means a corporation or partnership which is not domestic.
(6) **Fiduciary** — The term “fiduciary” means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person.
(7) **Stock** — The term “stock” includes shares in an association, joint-stock company, or insurance company.
(8) **Shareholder** — The term “shareholder” includes a member in an association, joint-stock company, or insurance company.
(9) **United States** — The term “United States” when used in a geographical sense includes only the States and the District of Columb
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Federal law — U.S. Code and appendices · legal_authorities
**(a) In general** In the case of a Native Corporation, there shall be allowed a deduction for any contributions made by such Native Corporation to a Settlement Trust (regardless of whether an election under section 646 is in effect for such Settlement Trust) for which the Native Corporation has made an annual election under subsection (e).
**(b) Amount of deduction** The amount of the deduction under subsection (a) shall be equal to—
(1) in the case of a cash contribution (regardless of the method of payment, including currency, coins, money order, or check), the amount of such contribution, or
(2) in the case of a contribution not described in paragraph (1), the lesser of—
(A) the Native Corporation’s adjusted basis in the property contributed, or
(B) the fair market value of the property contributed.
**(c) Limitation and carryover**
(1) **In general** — Subject to paragraph (2), the deduction allowed under subsection (a) for any taxable year shall not exceed the taxable income (as determined without regard to such deduction) of the Native Corporation for the taxable year in which the contribution was made.
(2) **Carryover** — If the aggregate amount of contributions described in subsection (a) for any taxable year exceeds the limitation under paragraph (1), such excess shall be treated as a contribution described in subsection (a) in each of the 15 succeeding years in order of time.
**(d) Definitions** For purposes of this section, the terms “Native Corporation” and “Settlement Trust” have the same meaning given such terms under section 646(h).
**(e) Manner of making election**
(1) **In general** — For each taxable year, a Native Corporation may elect to have this section apply for such taxable year on the income tax return or an amendment or supplemen
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Treatment of certain stock purchases**
(1) **Acquisition by related corporation (other than subsidiary)** — For purposes of sections 302 and 303, if—
(A) one or more persons are in control of each of two corporations, and
(B) in return for property, one of the corporations acquires stock in the other corporation from the person (or persons) so in control,
then (unless paragraph (2) applies) such property shall be treated as a distribution in redemption of the stock of the corporation acquiring such stock. To the extent that such distribution is treated as a distribution to which section 301 applies, the transferor and the acquiring corporation shall be treated in the same manner as if the transferor had transferred the stock so acquired to the acquiring corporation in exchange for stock of the acquiring corporation in a transaction to which section 351(a) applies, and then the acquiring corporation had redeemed the stock it was treated as issuing in such transaction.
(2) **Acquisition by subsidiary** — For purposes of sections 302 and 303, if—
(A) in return for property, one corporation acquires from a shareholder of another corporation stock in such other corporation, and
(B) the issuing corporation controls the acquiring corporation,
then such property shall be treated as a distribution in redemption of the stock of the issuing corporation.
**(b) Special rules for application of subsection (a)**
(1) **Rules for determinations under section 302(b)** — In the case of any acquisition of stock to which subsection (a) of this section applies, determinations as to whether the acquisition is, by reason of section 302(b), to be treated as a distribution in part or full payment in exchange for the stock shall be made by reference to the stock of the i
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Deduction not allowed for dividends from certain corporations**
(1) **In general** — The deductions allowed by sections 243 11 So in original. Probably should be followed by a comma. 245, and 245A shall not apply to any dividend from a corporation which, for the taxable year of the corporation in which the distribution is made, or for the next preceding taxable year of the corporation, is a corporation exempt from tax under section 501 (relating to certain charitable, etc., organizations) or section 521 (relating to farmers’ cooperative associations).
(2) **Subsection not to apply to certain dividends of Federal Home Loan Banks**
(A) *Dividends out of current earnings and profits* — In the case of any dividend paid by any FHLB out of earnings and profits of the FHLB for the taxable year in which such dividend was paid, paragraph (1) shall not apply to that portion of such dividend which bears the same ratio to the total dividend as—
(i) the dividends received by the FHLB from the FHLMC during such taxable year, bears to
(ii) the total earnings and profits of the FHLB for such taxable year.
(B) *Dividends out of accumulated earnings and profits* — In the case of any dividend which is paid out of any accumulated earnings and profits of any FHLB, paragraph (1) shall not apply to that portion of the dividend which bears the same ratio to the total dividend as—
(i) the amount of dividends received by such FHLB from the FHLMC which are out of earnings and profits of the FHLMC—
(I) for taxable years ending after December 31, 1984, and
(II) which were not previously treated as distributed under subparagraph (A) or this subparagraph, bears to
(ii) the total accumulated earnings and profits of the FHLB as of the time such dividend i
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Federal law — U.S. Code and appendices · legal_authorities
**(a) General rule** Proper adjustment in respect of the property shall in all cases be made—
(1) for expenditures, receipts, losses, or other items, properly chargeable to capital account, but no such adjustment shall be made—
(A) for—
(i) taxes or other carrying charges described in section 266; or
(ii) expenditures described in section 173 (relating to circulation expenditures),
for which deductions have been taken by the taxpayer in determining taxable income for the taxable year or prior taxable years; or
(B) for mortality, expense, or other reasonable charges incurred under an annuity or life insurance contract;
(2) in respect of any period since February 28, 1913, for exhaustion, wear and tear, obsolescence, amortization, and depletion, to the extent of the amount—
(A) allowed as deductions in computing taxable income under this subtitle or prior income tax laws, and
(B) resulting (by reason of the deductions so allowed) in a reduction for any taxable year of the taxpayer’s taxes under this subtitle (other than chapter 2, relating to tax on self-employment income), or prior income, war-profits, or excess-profits tax laws,
but not less than the amount allowable under this subtitle or prior income tax laws. Where no method has been adopted under section 167 (relating to depreciation deduction), the amount allowable shall be determined under the straight line method. Subparagraph (B) of this paragraph shall not apply in respect of any period since February 28, 1913, and before January 1, 1952, unless an election has been made under section 1020 (as in effect before the date of the enactment of the Tax Reform Act of 1976). Where for any taxable year before the taxable year 1932 the depletion allowance was based on discovery value or a pe
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Federal law — U.S. Code and appendices · legal_authorities
Page 2295
TITLE 26—INTERNAL REVENUE CODE
§ 1059
1 So in original. Probably should be followed by a comma.
§ 631(e)(13), Oct. 22, 1986, 100 Stat. 2275, related to basis
limitation for player contracts transferred in connec-
tion with the sale of a franchise.
A prior section 1056 was renumbered section 1062 of
this title.
Statutory Notes and Related Subsidiaries
EFFECTIVE DATE OF REPEAL
Repeal applicable to property acquired after Oct. 22,
2004, see section 886(c)(1) of Pub. L. 108–357, set out as
an Effective Date of 2004 Amendment note under sec-
tion 197 of this title.
[§ 1057.
Repealed.
Pub.
L.
105–34,
title
XI,
§ 1131(c)(2), Aug. 5, 1997, 111 Stat. 980]
Section, added Pub. L. 94–455, title X, § 1015(c), Oct. 4,
1976, 90 Stat. 1618, related to election to treat transfer
to foreign trust, etc., as taxable exchange.
A prior section 1057 was renumbered section 1062 of
this title.
§ 1058. Transfers of securities under certain
agreements
(a) General rule
In the case of a taxpayer who transfers securi-
ties (as defined in section 1236(c)) pursuant to an
agreement which meets the requirements of sub-
section (b), no gain or loss shall be recognized on
the exchange of such securities by the taxpayer
for an obligation under such agreement, or on
the exchange of rights under such agreement by
that taxpayer for securities identical to the se-
curities transferred by that taxpayer.
(b) Agreement requirements
In order to meet the requirements of this sub-
section, an agreement shall—
(1) provide for the return to the transferor of
securities identical to the securities trans-
ferred;
(2) require that payments shall be made to
the transferor of amounts equivalent to all in-
terest, dividends, and other distributions
which the owner of the securit
Source: Supplied 2024 U.S. Code historical extraction · 26 U.S.C. § 1059
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