WASHINGTON -- The Internal Revenue Service issued a revenue ruling Friday designed to crack down on abusive bond deals in which bogus insurance is used to shield an arbitrage scheme that nets the participants huge profits for questionable projects.

Revenue Ruling 94-42 represents the first step taken by the IRS to go after abusive deals that have been targeted under its new beefed-up bond enforcement program, agency officials said. The IRS announced in January that it planned to go after a handful of alleged bond abuses, including arbitrage-driven transactions with tax-exempt bonds whose debt service is backloaded.

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