WASHINGTON The Treasury did not intend its revised arbitrage rules to prohibit borrowers from using the proceeds of tax-exempt small-issue industrial development bonds to repay temporary construction loans, a department official said yesterday.

"We believe that the regulations should not interfere with the issuance of tax-exempt small issue bonds to refinance interim taxable borrowings," wrote Glen Kohl, Treasury's tax legislative counsel, in a letter to Nell Arkuss.

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