WASHINGTON - State and local issuers that apply the new arbitrage rules retroactively to previously issued bonds may be able to obtain a refund of some of the arbitrage they rebated to the federal government, an Internal Revenue Service official said yesterday.

You can apply for a refund "if the consequences of electing into the new regulations would entitle you to a refund of a rebate payment previously made," John J. Cross 3rd, counsel to the assistant chief counsel for the IRS' financial institutions and products division, said at a Government Finance Officers Association seminar on the rules.

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