Bear, Stearns & Co. said the Internal Revenue Service will face a fight over its attempt to retroactively close a tax loophole for issuers of so- called step-down REIT preferred securities.

Frederick Khedouri, senior managing director of Bear Stearns' financial institutions group, said his firm is not alone in trying to save the loophole for securities that have already been issued. The issuers, the law firms that advised them, and investors also have joined the battle, he said.

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