WASHINGTON -- A U.S. district judge has dismissed the lawsuit filed by Galt, Calif., earlier this year to block the Treasury and the Internal Revenue Service from either collecting arbitrage or taxing investors' interest earnings from a $29.29 million bond issue.

Judge Davis F. Levi, with the U.S. District Court for the Eastern District of California in Sacramento, dismissed the suit Friday after finding that the court lacked jurisdiction over the tax dispute and that Galt had an alternative remedy to court action. Judge Levi said the city could pay the $1.1 million in arbitrage the IRS was seeking and then file for a refund of that money under an IRS rule issued in May.

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