WASHINGTON -- In an unprecedented action, the Internal Revenue Service has begun taxing the interest earnings of holders of a $34 million municipal issue that was sold as tax-exempt in 1984 for the Sevier County, Tenn., Industrial Development Board.

The IRS's action has enraged bondholders and made industry officials worry that investors may desert the market if they can no longer be certain that tax-exempt bonds will always be tax-exempt.

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