A Kentucky lawsuit decided in early 2006, and a similar tax case now being tried in North Carolina, could spell the demise of single-state municipal bond funds as we know them.

Moreover, if these cases are successful in their bids to equalize the tax treatment of municipal bond income from state-to-state, industry participants worry that in-state deductions for 529 college savings plan contributions as well as the tax-free earnings on these plans could subsequently be targeted.

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