# What constitutes a subcontractor?



## jrc5049

I hold a few contracts where i live, i would like to get a couple guys this year to work for me this coming winter. I am a sole proprietor and DO NOT want employees, or to do a payroll. my question is...... hopefully someone can help me, b/c the IRS today said it could take 6 months to get a "determination" back. ( It will be spring before i get an answer haha)

Okay, generally subcontracors i have used have there own trucks, and own insurance and plow a said lot, just like me "the contractor".
Now, what if they use my equipment to do the job??? are they still a subcontractor? or would the IRS say that they are an employee? The women i spoke with on the phone today said it shouldnt matter who's equiptment it is that they do the job with, but rather how you treat them? are you telling them what to do? and so on? it was very vague to me and she didnt even know the answer.
Is there anyone out there that has some answers for me? thanks alot!


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## basher

Use the search feature, this has been covered a number of times.

Welcome to Plowsite:waving:


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## jrc5049

I would appreciate if someone could answer my question on this thread because i will have follow up questions.. thanks tho!


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## Crash935

long read but try this,

A contractor who behaves and is treated like an employee is an employee from the viewpoint of the U.S. Internal Revenue Service (IRS). The IRS applies a 20-part test in order to determine whether a certain worker should be classified as an employee or an independent contractor. The main issue underpinning the test is who sets the work rules: employees must follow rules set by their bosses; independent contractors set their own rules. An individual who sets his or her own hours, receives payment by the job, and divides his or her time between work for several different employers would typically be classified as an independent contractor. Other criteria involve who provides the tools and materials needed to complete the work. An individual who works at an employer's facility and uses the employer's equipment may be considered an employee—unless the individual is providing software consulting, for instance; one who works at a separate location and provides his or her own equipment would be classified as an independent contractor. Finally, an independent contractor usually pays his or her own business expenses and takes the risk of not receiving payment when work is not completed in accordance with a contract; an employee is usually reimbursed for business-related expenses by the employer and receives a paycheck whether his or her work is completed or not.


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## jrc5049

okay, then if they use my equiptment to do the job they would be considered an employee correct? Okay what if they rented the equiptment off of me to do the job on their own? then i could pay them as a sub right? pay them like 60$ like a normal sub, but send them a bill for equiptment rental for like 40$ per hr, (just an example)?


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## AiRhed

> Employees must follow rules set by their bosses; independent contractors set their own rules. An individual who sets his or her own hours, receives payment by the job, and divides his or her time between work for several different employers would typically be classified as an independent contractor. Other criteria involve who provides the tools and materials needed to complete the work.


I think what's key here is this. A Subcontractor who uses say for example, YOUR skidloader could still be a subcontractor if they, set their own rules, hours, receive payment by the job, don't receive payment for substandard work, they work for several different employers, and carry their own Insurance and business registration.

They would need insurance if they were renting the skid from you and operating as a sub. At $20 an hour, they seem more like employees with little assumed risk.


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## jrc5049

So if i find a sub to handle a lot for me they could use one of my trucks as long as long as i allow him to do the job without me giving him direction? as long as he can come and goes as he chooses he is a sub not an employee? ha gzz. this gets confusing


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## AiRhed

I read it as being a little more concrete than that. I think in your instance, if your sub is going to use your truck and not be assumed as an employee, he/she MUST have his/her own insurance AND assumed name or DBA registration. This makes it clear that they are operating at THEIR risk on THEIR dime as a Sub. What you describe,


> as long as i allow him


sounds like an employee situation. It's all just to cover your ASSets.


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## jrc5049

Do you see a way that i can make it work legally with a subcontractor thats uses my equipment then?


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## Mick

jrc5049;803318 said:


> Do you see a way that i can make it work legally with a subcontractor thats uses my equipment then?


This gets tricky and Crash935 gave the best detailed answer. I'd say (and my opinion means nothing to the IRS) is this could easily be determined to be a part-time employee because of the phrase "provides the tools and materials needed to complete the work". Remember, these requirements are here for your protection, too. Case in point - person using your truck gets hurt. He claims benefits under Workman's Compensation. He says he thought he was an employee BECAUSE he was using your equipment. The judge will decide. Yes, it happens - ask any insurance agent. You could try drawing up an agreement for him to sign stating that he understands his status as a subcontractor but I'd run it by a lawyer and your insurance agent.


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## basher

Ask your accountant. But briefly , If he uses your equipment but he must have his own insurance (with the same coverages you have, includung auto with rental coverage, workmans comp and general liability, you need to have a certificate of insurance on file) pay his own SS and Medicare and the employers matching, work at his own schedule, be paid by the event on a fixed schedule and have all proper State, county and municipal licenses.

If you want to lease him your equipment then you will have to report his rental payments as income and pay rental tax on it. 

You will need to have a contract stating the parameters of service he is to provide and at what rate.

All this and more have been covered in previous posts on this subject. If you spent a little time reading there are questions you have not thought of.

Remember if they declare him an employee at audit you will have to pay ALL the un paid taxes, etc, yourself and go after him for remburstment.

Your accountant is the one to be answering these questions, he is the one who will standing beside you in an audit.


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## Mark Oomkes

basher;803326 said:


> Ask your accountant. But briefly , If he uses your equipment but he must have his own insurance (with the same coverages you have, includung auto with rental coverage, workmans comp and general liability, you need to have a certificate of insurance on file) pay his own SS and Medicare and the employers matching, work at his own schedule, be paid by the event on a fixed schedule and have all proper State, county and municipal licenses.
> 
> If you want to lease him your equipment then you will have to report his rental payments as income and pay rental tax on it.
> 
> You will need to have a contract stating the parameters of service he is to provide and at what rate.
> 
> All this and more have been covered in previous posts on this subject. If you spent a little time reading there are questions you have not thought of.
> 
> Remember if they declare him an employee at audit you will have to pay ALL the un paid taxes, etc, yourself and go after him for remburstment.
> 
> Your accountant is the one to be answering these questions, he is the one who will standing beside you in an audit.


Bingo, nicely stated.

And in IMO, you're not going to get around it while having him using your equipment.

Why don't you want employees?


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## Mark Oomkes

Or, you could just be like the guys that readily admit to plowing 'under the table' and just forgo all laws and IRS requirements.

After all, we're all just doing this for beer money, right?


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## jrc5049

I Just dont want employees because my accountant always tells me that its a headach that i do not need, tons of paperwork, and time consuming. but its looking more and more like this is the route i will have to take


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## Mick76

you hire a payroll mang co and they take care of all the work... $ well spent IMO


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## mullis56

Mick76;803528 said:


> you hire a payroll mang co and they take care of all the work... $ well spent IMO


DITTO, DITTO....Ding, Ding!


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## jrc5049

how does that work? how do they charge you?


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## basher

Everybody is learning how
to do all jrc5049's research now
come on a plowsite search party with me.

http://www.google.com/search?q=payr...e=UTF-8&sourceid=ie7&rlz=1I7ACEW_enUS340US340


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## Mark Oomkes

I better stay out of this one, I already was partially at fault for a different thread that went bye-bye.

Woohoo, first one of the season. 

Bring 'em on newbies.


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## cet

I have a few sub contractors that I use. I am in Canada but I bet it is very similar.
The 3 main pieces of evidence that we have to submit to determine a sub is, Proof of ownership of equipment being used, a Registered Business License and 5 invoices for the same type of work to either other contractors or people/businesses that have hired the sub.

If you rent your skid to your sub for $40/hour and then he charges you $40/hour for the skid then I don't think that is going to work. These guys aren't dummies and have seen all the scams you can think of and a few you haven't.


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## grandview

http://www.irs.ustreas.gov/pub/irs-regs/subcontractorsfaq&a.prn.pdf


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## tha_lildude

what you can do is have him "rent" your truck. rent it for a penny a year. than pay him whatever you would normally pay him.


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## Mick

tha_lildude;804381 said:


> what you can do is have him "rent" your truck. rent it for a penny a year. than pay him whatever you would normally pay him.


Ever hear the phrase "Fair market value"?

This is not a good idea.


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## grandview

If some people would put as much effort to figure how to get more business as trying to get out of paying taxes they'd be rich.


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## basher

paying taxes is a good thing, it means I'm making a profit.


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## tha_lildude

Mick;804496 said:


> Ever hear the phrase "Fair market value"?
> 
> This is not a good idea.


fair market value has NOTHING to do with renting out your equipment, NOTHING. fair market value is pretty much a value that you state on your taxes when you count for how much assets you have, it has NOTHING to do with what you rent out equipment for, like i said before.


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## basher

tha_lildude;804554 said:


> fair market value has NOTHING to do with renting out your equipment, NOTHING. fair market value is pretty much a value that you state on your taxes when you count for how much assets you have, it has NOTHING to do with what you rent out equipment for, like i said before.


Sorry but you are (were) wrong. the IRS will look at a truck rented for less then _fair market value_ an they will say that you are trying to avoid taxes. They will then apply _fair market value _to the rental and tax the renter for the gift amount that is the difference between what was actually paid verses _fair market value_. they will also tax you for what you did receive. If they can prove you did it deliberately to avoid taxes they can charge you with tax obstruction and you and the renter for conspiracy to defraud (both the tax man and the insurance company.)

But do what you want to do, it will not effect me at all:


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## Mick

tha_lildude;804554 said:


> fair market value has NOTHING to do with renting out your equipment, NOTHING. fair market value is pretty much a value that you state on your taxes when you count for how much assets you have, it has NOTHING to do with what you rent out equipment for, like i said before.


Ok. Go ahead and do what you want to do. It'll just be between you and the IRS.


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## cet

Do you ever feel your efforts are completely wasted trying to help some people?


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## basher

cet;805025 said:


> Do you ever feel your efforts are completely wasted trying to help some people?


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## grandview

cet;805025 said:


> Do you ever feel your efforts are completely wasted trying to help some people?





basher;805086 said:


>


When you are your own boss, you don't need to listen to other people.


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## Mick

cet;805025 said:


> Do you ever feel your efforts are completely wasted trying to help some people?





grandview;804501 said:


> If some people would put as much effort to figure how to get more business as trying to get out of paying taxes they'd be rich.


Especially on forums like this, I think there's a responsibility to give "good" advice. When someone asks a question, the responder isn't helping by telling him something that will only result in trouble. Besides, IRS agents have begun trolling sites like this to catch tax cheats. If you think they can't because you're anonymous using a screen name, forget it - it's already been done.


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## Bporter

Well in my opion they are employees if your telling when, how, and what to do with your equipment. And by trying to go around it is just going to bite you in the rear. A friend of mine who has 6 guys working for him he was treating them as subs well when tax time came he gave them all a 10-99 for them to pay there taxes. well a couple of guys couldn't pay there taxes cause it was a couple of grand well the IRS told them that they are responsible as a subcontractor to pay there taxes. Well to make a long story short the IRS made my budy responsible for most of the cost since they guys working for them stated they worked as employees for my buddy. So I was you get proper insurance and if you have guys working for you treat them like employees unless they are getting there own insurance with there own equipment. Or just don't do it at all if you not willing to follow the rules. Do you really wan't to loose it all by trying to go around the system and getting burned with injury of one of your guys and he sues you for everything.
Thats my OPION


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## scottL

I don't full agree with the Set Own Rules and Times statement for being a subcontractor. It is completely allowable to establish requirements for a specific job site. If not then everyone would be an employee. Your set the requirements, that you are under contract for, they must abide - it's how they get there is the question.


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## Mick

You don't have to agree. The IRS has already decided:

http://www.irs.gov/newsroom/article/0,,id=173423,00.html


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## QuadPlower

I think what Scott is saying is that even though they are doing the work for you, you can tell them where you want the snow pushed to and what times it has to be done, trigger amounts, etc. 

If they want to use 30 guys with shovels, then they can.


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## scottL

QuadPlower;805595 said:


> I think what Scott is saying is that even though they are doing the work for you, you can tell them where you want the snow pushed to and what times it has to be done, trigger amounts, etc.
> 
> If they want to use 30 guys with shovels, then they can.


Yup - 40 guys and shovels.

In the Link Mick posted #5 and #6 almost argue each other. The thing is that you can dictate exactly the when and result along with safety stipulations, you can say that each engagement must be accomplished within a certain time period and what the trigger of activity is. #7 financial control has always been used in contracts to sub's.

The states do this all of the time. They also have inspectors who report issues for the subcontracting company to fix. Look at the road projects ... you think your local DOT has 1,000's of employees and equipment to do everything especially large projects. I think DOT activities best mirror snow plowing activities.

The biggest problem I see is that if anything between the worker and company ever went to an official level like worker comp, court, etc. .... The law wording is very wishy washy and could be used to give benefits where no benefits were due. I have heard many stories of this happening and why not .... the company is rich beyond means aren't they>....


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## basher

QuadPlower;805595 said:


> I think what Scott is saying is that even though they are doing the work for you, you can tell them where you want the snow pushed to and what times it has to be done, trigger amounts, etc.
> 
> If they want to use 30 guys with shovels, then they can.


Well stated, parameters of service but no tactical restraints


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## basher

scottL;805603 said:


> In the Link Mick posted #5 and #6 almost argue each other. The thing is that you can dictate exactly the when and result along with safety stipulations, you can say that each engagement must be accomplished within a certain time period and what the trigger of activity is. #7 financial control has always been used in contracts to sub's. QUOTE]
> 
> The thing is it doesn't matter if you think you have managed to find a "loophole" when you're in the middle of a shi* storm. The IRS has people paid to argue, you pay people to argue. They will not give you back your money if you "win" and are proven not to have circumvented the law. It comes down to the same thing as having "right away" in an auto accident. If you're in an accident and you have the right away it doesn't change the fact you're laying in a hospital.
> 
> The IRS can lock your doors, freeze your bank accounts and place a lien on your home. A lot of trouble to save a little in taxes.


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## scottL

basher;805614 said:


> scottL;805603 said:
> 
> 
> 
> In the Link Mick posted #5 and #6 almost argue each other. The thing is that you can dictate exactly the when and result along with safety stipulations, you can say that each engagement must be accomplished within a certain time period and what the trigger of activity is. #7 financial control has always been used in contracts to sub's. QUOTE]
> 
> The thing is it doesn't matter if you think you have managed to find a "loophole" when you're in the middle of a shi* storm. The IRS has people paid to argue, you pay people to argue. They will not give you back your money if you "win" and are proven not to have circumvented the law. It comes down to the same thing as having "right away" in an auto accident. If you're in an accident and you have the right away it doesn't change the fact you're laying in a hospital.
> 
> The IRS can lock your doors, freeze your bank accounts and place a lien on your home. A lot of trouble to save a little in taxes.
> 
> 
> 
> It's not about me finding a loophole. In fact I want to avoid anything that even comes close to the line.
> Once I read this thread and many like it trying to best understand how to legally function without incurring a fight with the irs, courts, etc. is key. I've talked with cpa's and hr folks and a lawyer. The bottom line is the legal powers have wiggle room, juries have intent and we must work in best faith and hope for the best. Granted some things a clearer than others but ultimately anything can be claimed by anyone.
> 
> What there needs to be is a court of common sense.
Click to expand...


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## PLCI

Pick up the book "Hiring Independent Contractors" by Stephen Fishman, its easier than filling out a SS-8.


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## scottL

PLCI;805714 said:


> Pick up the book "Hiring Independent Contractors" by Stephen Fishman, its easier than filling out a SS-8.


Great read. It just underlines the general conversation that there is plenty of wiggle room from all sides. I suspect those that take advantage of a situation will get nailed. The worker bees tend to get it in their favor.


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## me!

Bottom line is this. The irs doesn't care if the person is a sub or employee until taxes are not paid. Then they will use that wiggle room your really bad lawyer said is there to put your but on a stake and burn u.

Find all the loop hole you want, if the taxes don't get paid you will go down for it. Unless he has more money then you, then he will go down for it.

Now if you want some loop holes, 

Don't pay by the hour, pay by job or a %.
Lease him the truck, fed-x got busted for that one, but i don't know how that turned out.
Make him sign a contract. Make it say he is a sub and is responsible for all taxes

the safest thing to do would be a pay role service. You can also use a temp agency as a pay role service. But if you think you will be having employees for years to come and more then 1 or 2, might as well learn now how to do pay role.


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## basher

me!;805964 said:


> Make him sign a contract. Make it say he is a sub and is responsible for all taxes.


And insurances. When your insurance audit rolls around they will want to see certificates of insurance for all your "subs" you don't have they will bill you.


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## scottL

I've noticed in several posting this kind of language .... "Loop Holes", "Bad Lawyers", putting quotes around "sub".

I don't get it ... is this just one big game and wink of the eye. I can understand some abuse and purposefully try to play games but, for most we are trying our best to do everything correctly but, in doing so, every make the first assumption we too are playing games. 

What do you do when the pro's ( HR, Payroll, Insurance, CPa's and Lawyers ) all make their own interpretations and still there is plenty of case law and workers comps and irs claims to say the exact opposite given the same situation. Pure Crap ... As I see it it is just a matter of when you face the music that some d-bag decides to bring your way no matter how honest you were.


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## MidcoastMainiac

What if Company A were to rent/lease the equipment J.Doe - Hire him to plow lots "A-B&C" for Company A, but renter/leasee is allowed to aquire other lots on his own. Now J.Doe is being paid by more than one person/company. Then J.Doe would be required to carry ins-set his own sked-and be reporting income that has nothing to do with Company A. Sounds lie a sub to me.

Opinions??


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## scottL

Here's the real deal.

You, I and everyone can play a game, try real hard to be honest or lie through our teeth. In the end if something happens like an accident or audit you will either cave and pay, fight with a lawyer or beg a judge or panel and ultimately there is so much wiggle room you can only hope and pray for the best.

Of course the obvious tool-bags get called out but, honest ones still get dragged through the muck too. I suppose this is why lawyers are paid so much and the vast majority of those making the laws are lawyers. 

Have Vaseline :crying:


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## basher

MidcoastMainiac;811388 said:


> What if Company A were to rent/lease the equipment J.Doe - Hire him to plow lots "A-B&C" for Company A, but renter/leasee is allowed to aquire other lots on his own. Now J.Doe is being paid by more than one person/company. Then J.Doe would be required to carry ins-set his own sked-and be reporting income that has nothing to do with Company A. Sounds lie a sub to me.
> 
> Opinions??


Maybe it could work for some people sometime usually but maybe mostly some other people it would definitely not work at all most of the time or unless they had the time although it really shouldn't take very long, but it could work all the time usually.

It does not matter what we think its between you, the IRS, the insurance companies and the lawyers. Do what I do; have and account look over your business plan then have the lawyer look over the accounts recommendations. 
My question would be why? I think the cost of the paperwork involved for your plan would exceed the cost of the employee. Not to mention the taxes on the income from leasing, the cost of maintaining a rental license, legal fees for helping you draw up the proper forms and the accounting fees involved with the secondary business. If you're not doing it right you just pay cash under the table not recommended because of all the assumed liabilities both civil and criminal.


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## Mark Oomkes

scottL;811441 said:


> Here's the real deal.
> 
> You, I and everyone can play a game, try real hard to be honest or lie through our teeth. In the end if something happens like an accident or audit you will either cave and pay, fight with a lawyer or beg a judge or panel and ultimately there is so much wiggle room you can only hope and pray for the best.
> 
> Of course the obvious tool-bags get called out but, honest ones still get dragged through the muck too. I suppose this is why lawyers are paid so much and the vast majority of those making the laws are lawyers.
> 
> Have Vaseline :crying:





basher;811518 said:


> Maybe it could work for some people sometime usually but maybe mostly some other people it would definitely not work at all most of the time or unless they had the time although it really shouldn't take very long, but it could work all the time usually.
> 
> It does not matter what we think its between you, the IRS, the insurance companies and the lawyers. Do what I do; have and account look over your business plan then have the lawyer look over the accounts recommendations.
> My question would be why? I think the cost of the paperwork involved for your plan would exceed the cost of the employee. Not to mention the taxes on the income from leasing, the cost of maintaining a rental license, legal fees for helping you draw up the proper forms and the accounting fees involved with the secondary business. If you're not doing it right you just pay cash under the table not recommended because of all the assumed liabilities both civil and criminal.


You guys are just so darn logical.


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## Diesel Dan

basher;805605 said:


> tactical restraints


Sounds kinky Thumbs Up


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