WASHINGTON -- The Internal Revenue Service is trying to tax interest earnings of nearly three dozen firms and individuals that bought tax-exempt bonds issued by the Riverside County Housing Authority in late 1985 to finance the Whitewater Garden apartment project, court papers reveal.

The IRS action was disclosed known late last week when U.S. attorneys asked the U.S. District Court for the Central District of California to dismiss a lawsuit filed by the Riverside authority to block the IRS and Treasury from collecting arbitrage or taxing interest from the $17.5 million Whitewater Garden issue.

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