Metropolitan Mortgage & Securities Co.s recent disclosure that the Internal Revenue Service might disallow a $28 million tax benefit it had claimed didnt stem from an IRS probe of the big Spokane-based financial-services provider.


It resulted, rather, from Metropolitans interpretation of a general notice issued by the IRS in which the agency indicated its intention to disallow some tax benefits, company representatives say.


Metropolitan voluntarily provided the IRS with details about an investment loss on which it based the tax benefit in response to a nationwide IRS campaign that also drew responses from many other companies, they say.


The purpose of the campaign, called the IRS Tax Shelter Disclosure Initiative, was to gather information on tax shelters and to identify what the agency referred to as questionable ones. It led taxpayers to disclose billions of dollars in claimed losses and deductions on which the IRS might decide they owe additional taxes.


As the Journal reported last month, Metropolitan disclosed in its latest annual report that it had received an audit notice from the IRS for the tax period in which it claimed the tax benefit. The IRS now is conducting the audit, company representatives say, but they decline to speculate on when a ruling might be issued on the big tax benefit or how Metropolitan might respond to an adverse ruling. The company said in its annual report that such a ruling potentially could result in a loss of up to $28 million plus interest against its earnings.


The company has declined to discuss publicly the details of the 1999 investment on which it based the tax benefit. It also has declined to discuss the financial significance of the matter from the companys perspective, citing U.S. Securities and Exchange Commission disclosure-related concerns.


In a prepared single-sentence statement, though, Erik Skaggs, Metropolitans spokes-man, said that two independent tax opinions the company received in connection with the investment provided us with confidence in the propriety of the investment and related tax strategy.


Nancy Mathis, a Washington, D.C.-based IRS spokeswoman, says the IRS initiative was one in a series of steps weve taken to identify and shut down questionable tax shelters.


The IRS launched the 120-day initiative in mid-December 2001 to encourage taxpayers to voluntarily turn over details about any tax shelters or other possibly suspect items reported on their tax returns that might have resulted in an underpayment of taxes, Mathis says.


In return, as a carrot, it promised to waive certain hefty accuracy-related penalties that it might have imposed if it had discovered such underpayment itself.


It also emphasized that the disclosures wouldnt create any inference that the taxpayers making them had done anything improper.


Judy Monahan, a Seattle-based IRS spokeswoman, declines to speculate on how many Inland Northwest companies might have made such disclosures in response to the initiative, saying no such geographical breakdown is available.


Nationwide, the amnesty campaign drew responses from 1,206 taxpayers involving transactions that claimed $30 billion in losses and deductions. The IRS is using the information both to collect unpaid taxes it believes are owed, and to identifyand pursue action againstsuspected abusive tax-shelter promoters.


Although Metropolitan has released few details about the investment on which it based its $28 million tax benefit, it said in its annual report that similar investments were presented throughout the country to numerous individuals and companies as an investment and tax strategy.


Meanwhile, the federal government continues ratcheting up its assault on what it regards as tax-avoidance schemes. In January, the IRS announced the launch of a voluntary initiative thats aimed at bringing taxpayers who use offshore financial arrangements to hide their income back into compliance with tax law. Two weeks ago, the U.S. Treasury announced that it will begin requiring more disclosure by taxpayers, tax advisers, and tax shelter promoters as a way to fight tax evasion.