WASHINGTON -- Many bond market participants hope that a California authority's lawsuit against the Internal Revenue Service and the Treasury will lead to a public debate about how far these agencies can go in holding issuers or bondholders responsible for tax law violations that may have been committed by other parties in a bond deal.

But they worry that the suit -- which the Riverside County Housing Authority filed last Friday to block the IRS and Treasury from collecting arbitrage or taxing interest earnings from the $17.5 million of Whitewater Gardens issue -- will never get past the question of whether an issuer can seek court protection against the agencies' enforcement actions.

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