How businesses influence the tax-writing process

When it comes to politics, special-interest tax breaks and the congressional committees that write the nation's tax laws, there are some remarkable coincidences.

Look at where the money flows - campaign contributions, speaking fees, retainers to well-connected law firms - and you're likely also to find tax favors.

This does not mean that those who grant tax favors are doing anything illegal. Nor does it mean that everybody who gives money is looking for a tax

break.

But the money does provide access to the people who write the tax laws, a ticket, if you will, to get in the door to what in the 1980s has become an almost annual event on Capitol Hill - the rewriting of the Internal Revenue Code and the dispensing of tax benefits.

Once inside, the contributors have the opportunity to argue their cases in the most favorable light before legislation affecting them is passed by Congress - an opportunity not available to the overwhelming majority of ordinary taxpayers.

Consider, for a moment, speaking fees paid to members of the congressional tax-writing committees in 1986, and campaign contributions to those same members in 1985 and 1986, the two years during which the Tax Reform Act of 1986 was being written.

ITEM. Rep. Dan Rostenkowski (D., Ill.), who as chairman of the House Ways and Means Committee was one of two lawmakers who approved hundreds of special- interest provisions in the tax act, received a $5,000 speaking fee from Joseph E. Seagram & Sons Inc., the U.S. subsidiary of Seagram Co. Ltd., a Canadian distilling company controlled by the billionaire Bronfman brothers, Charles R. and Edgar M.

Rep. Thomas J. Downey (D., N.Y.), a member of the Ways and Means Committee, and Sens. Max Baucus (D., Mont.), Bob Dole (R., Kan.) and John H. Chafee (R., R.I.), members of the Senate Finance Committee and supporters of the tax overhaul, each received $2,000 in speaking fees from Seagram.

Sen. Bob Packwood (R., Ore.), who as chairman of the Senate Finance Committee shared responsibility with Rostenkowski for approving hundreds of special-interest tax breaks, received a $1,000 campaign contribution from Edgar Bronfman. So, too, did Sen. Daniel Patrick Moynihan (D., N.Y.), a Finance Committee member and ardent advocate of the tax act. Dole and Downey each received $2,000 in campaign contributions from Edgar Bronfman.

Rostenkowski received a $1,000 campaign contribution from Samuel Bronfman 2d and $2,000 in contributions from the Joseph E. Seagram & Sons Inc. Political Action Committee (PAC). Rep. Charles B. Rangel (D., N.Y.), a member of the Ways and Means Committee, and Sen. Charles E. Grassley (R., Iowa), a member of the Finance Committee, each received $1,000 campaign contributions

from the Seagram PAC.

Seagram received its own private, custom-tailored tax break from Congress in the 1986 act that allows it to avoid payment of perhaps as much as $40 million in taxes.

ITEM. Packwood received a total of $3,000 in campaign contributions from Jay, Selig and Cathy Zises. The Zises brothers, Jay and Selig, founded and run Integrated Resources Inc., a New York financial services company whose origins were rooted in the sale of tax shelters to wealthy investors seeking to escape payment of taxes.

Moynihan received a total of $2,000 in campaign contributions from Jay and Selig Zises, Grassley received $1,000 from another brother, Seymour, and Downey received a total of $3,000 from Jay, Selig and Seymour Zises.

Integrated Resources received its own private, custom-tailored tax break

from Congress in 1986 that allows it to avoid payment of an estimated $43 million in taxes.

ITEM. Grassley received a $500 campaign contribution - the Republican Party and other GOP candidates received an additional $4,400 - from John Ruan, a wealthy Des Moines businessman, and his family.

A Ruan leasing company received its own private, custom-tailored tax break

from Congress in 1986 that allows it to avoid payment of $8.5 million in taxes.

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Speaking fees and campaign contributions, of course, are only two of the ways that businesses and individuals seek to exert influence on the tax- writing process.

Sometimes they use a more indirect route to win access. They hire former congressional staff members who have drafted the tax laws or who have served as tax advisers to individual lawmakers.

As part of a long-standing Washington tradition, the staff members serve a sort of apprenticeship writing tax laws for congressional committees, then head off to join law firms, lobbying organizations and corporations that are constantly pursuing preferential treatment under the tax laws.

Better than anyone else, these former staff members know which buttons to push - which lawmakers to approach for favors, when to make their pitch and, perhaps, when to back off.

None of this is to suggest that only those lawmakers who serve on the House Ways and Means and the Senate Finance Committees have enough influence to secure tax favors.

Sometimes concessions are parceled out to other lawmakers by the tax writers to assure their votes on a measure whose outcome may be in doubt. Some Capitol Hill critics contend that that was why the Tax Reform Act of 1986 was stuffed with favors.

Sometimes others in leadership positions enjoy the same privileges as those who are members on the tax-writing committees. And when a special-interest captures the attention of both the tax writers and other congressional leaders, a tax break is almost certain to follow.

Regardless of how a special tax break comes about, Congress' multimillion- dollar speechmaking and honorarium industry is, in the opinion of some in Washington, a potentially corrupting influence on the legislative process.

In a speech delivered in early March, Assistant Attorney General William F. Weld, head of the Justice Department's criminal division, zeroed in on the situation.

Recalling an incident that occurred not long after he arrived at the Justice Department in 1986 after five years as U.S. attorney in Massachusetts, where he had built a reputation for political-corruption prosecutions, Weld said:

"Just after I came to Washington, I read that a group of federal legislators had toured the facilities of a commercial enterprise over which their committee had jurisdiction, and for this had each received expenses plus a $2,000 'fee' - not for their campaign treasuries, but for their personal bank accounts.

"This sounded to me, fresh in from the hinterlands, like a prima facie

criminal violation. But when I went to the law books, I discovered to my surprise that in fact only members of the executive branch and the independent agencies are prohibited from supplementing their salaries with fees and honoraria for job-related activities.

"Thus, actions that would be illegal if committed by someone in the executive branch were perfectly all right if committed by a member of Congress. Congress has exempted itself from coverage of this law (the 1978 Ethics in Government Act). "

Weld added that "congressmen who expect the public to believe that large monetary donations do not affect their votes or their views, or their decisions about how they spend their time, underestimate the intelligence of the American people. "

Weld has since left his post. He and five other Justice Department officials resigned on March 29 over the ongoing legal problems of Attorney General Edwin Meese 3d - essentially an issue of conflict of interest.

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As Weld said, under federal law legislators may accept honorariums from individuals and businesses, even from those who are directly affected by legislation the members later enact.

The 20 members of the Senate Finance Committee and the 36 members of the House Ways and Means Committee are, like all those in Congress, required by law to report speaking fees on their annual financial disclosure statements. The fees cited here were drawn from those records.

The campaign contributions cited here were drawn from reports filed with the Federal Election Commission (FEC). Because FEC records are so voluminous, and the agency maintains only partial indexes, the list may be far from complete.

Here is what some of the records show:

ITEM. Sen. Chafee received a $2,000 speaking fee from American International Group Inc. (AIG), a global insurance holding company. Rep. Richard A. Gephardt (D., Mo.), a Ways and Means Committee member and supporter of the tax act, received a $2,000 speaking fee from CIGNA Corp., another global insurance holding company.

AIG and CIGNA received their own private, custom-tailored joint tax break

from Congress in 1986 that allows them to avoid payment of an estimated $20 million in taxes.

ITEM. Sen. David Durenberger (R., Minn.) and Sen. Steven D. Symms (R., Idaho), both Senate Finance Committee members, each received $2,000 speaking fees from Massachusetts Mutual Life Insurance Co.

Reps. Brian J. Donnelly (D., Mass.), Richard T. Schulze (R., Pa.), Guy Vander Jagt (R., Mich.), Ronnie G. Flippo (D., Ala.), Byron L. Dorgan (D., N.D.) and Sam M. Gibbons (D., Fla.), all members of the Ways and Means Committee and all supporters of the tax act, each received $2,000 speaking fees from Massachusetts Mutual Life Insurance Co.

Rep. Rostenkowski; Rep. Marty Russo (D., Ill.), a House Ways and Means Committee member, and Sen. Grassley each received $1,000 in campaign contributions from the Massachusetts Mutual PAC.

Massachusetts Mutual Life Insurance Co. received a custom-tailored tax

break from Congress in 1986 that allows it to avoid payment of an estimated $11 million in taxes.

ITEM. Symms and Chafee each received $2,000 speaking fees from the Aetna Life Insurance Co. Rostenkowski received $3,000 in campaign contributions from Aetna's PAC, Grassley received $1,000.

The Aetna Life Insurance Co. received a custom-tailored tax break from Congress in 1986 that allows it to avoid payment of an estimated $15 million in taxes.

ITEM. Sen. William V. Roth Jr. (R., Del.), a Senate Finance Committee member, Sen. Dole and Rep. Gephardt each received $2,000 speaking fees from Merrill Lynch & Co., the New York-based securities dealer and investment banking firm.

Merrill Lynch received its own private, custom-tailored tax break from Congress in 1986 that allows it to avoid payment of an estimated $4 million in taxes.

ITEM. Rep. Barbara B. Kennelly (D., Conn.), a Ways and Means Committee member, received a $2,000 speaking fee from New England Mutual Life Insurance Co. Rostenkowski received $4,000 in speaking fees from New England Mutual.

New England Mutual Life Insurance Co. received a custom-tailored tax break

from Congress in 1986 that allows it to avoid payment of more than $1 million in taxes.

ITEM. Sen. Moynihan received a $2,000 speaking fee from Morgan Guaranty Trust Co., a New York bank.

Morgan Guaranty received its own private, custom-tailored tax break from Congress in 1986 that allows it to avoid payment of an estimated $32 million in taxes.

ITEM. Rostenkowski received a $2,000 speaking fee from MCA Inc., the Hollywood entertainment conglomerate. Sen. Packwood received $2,000 in campaign contributions from MCA's chief executive officer and the officer's wife. Rostenkowski received a $1,000 campaign contribution from the head of the Walt Disney Co., and Grassley received a $1,000 contribution from the Disney Co. PAC.

MCA and the Walt Disney Co. received their own private, custom-tailored tax

break in 1986 that allows them to avoid payment of an estimated $65 million in taxes.

In a few instances, individuals or corporations that obtained private tax laws ultimately were unable, due to unrelated circumstances, to make use of them.

For example, Drexel Burnham Lambert Inc., the New York-based securities dealer and investment-banking firm, obtained a provision that would have saved the firm an estimated $20 million in taxes.

But the tax break was tied to Drexel Burnham's move into a new headquarters building in New York City. When the firm decided to cancel the move, it could not take advantage of the concession.

In all, $13,000 in speaking fees were paid by Drexel Burnham to members of tax-writing committees. Rostenkowski got $5,000, Gephardt and Rep. Downey each received $2,000. Sen. Bill Bradley (D., N.J.), a Finance Committee member and an architect of the tax act, received $2,000, as did Dole.

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The total 1986 speaking fees of Rostenkowski, the most powerful of the Capitol Hill tax writers through his chairmanship of the Ways and Means Committee, where all tax legislation must originate, eclipsed those paid to every other member of Ways and Means or the Senate Finance Committee.

For the full year of 1986, Rostenkowski collected $177,500 for delivering speeches, more than twice his House salary of $75,100.

In addition to speaking fees from businesses that obtained private tax laws, that figure includes tens of thousands of dollars in honorariums from other special interests that had a direct stake in the outcome of the tax legislation.

For example, Rostenkowski received $10,000 from the Chicago Board of Trade, $2,000 from the Midwest Stock Exchange, $2,000 from the American Horse Council Inc., $5,000 from the Municipal Issuers Service Corp., $5,000 from the Western Association of Equipment Lessors.

Of the tax writers, Sen. Dole placed a distant second in speaking fees in 1986, picking up $118,500. Sen. Moynihan came in third with $108,975.

They could not keep it all, though. Members of Congress are restricted in the amount of speaking fees and other earned income they may retain over and above their congressional salaries. For 1986, senators could keep $30,040 of such income, an amount equal to 40 percent of their salaries. Representatives could keep $22,530, an amount equal to 30 percent of their salaries.

In Rostenkowski's case, he reported keeping $22,000 as personal income and donating the remaining $155,500 to charitable organizations, as required by law.

As the financial disclosure statements of Rostenkowski, Dole, Moynihan and other lawmakers indicate, the congressional speech-making business has evolved into a multimillion-dollar cottage industry that not only provides income for members of Congress but pays political dividends as well.

A lawmaker who contributes thousands of dollars to charities in his home state builds good will among voters, making it more difficult for opponents to mount a successful challenge.

What charitable organizations did Rostenkowski contribute his $155,500 to?

He isn't talking.

"He doesn't release that," said an aide.

Is there some reason to keep the information secret?

"Between us chickens," said the aide, who asked to remain anonymous, ''his feeling is that, you know, that releasing it will do nothing but yield additional solicitations from people asking him for money. I mean, it's just a little bit provocative in that regard. "

Does that mean, perhaps, the contributions do not go to Illinois charities?

"A lot of it goes to Chicago and Illinois," said the aide, adding, "I haven't seen a list recently. But I would guess that probably, you know, it breaks more or less half and half, maybe a bit more toward Illinois. "

Some lawmakers voluntarily disclose which charities they contribute to, although the law does not require it.

Similarly, while some lawmakers use the income from speeches to augment their congressional salaries to cover living expenses, and others to accumulate wealth, some of the most ardent advocates of preferential tax provisions have no need to do so.

Among the latter group is Sen. John Heinz (R., Pa.). One of the Senate's wealthiest members - his fortune grew out of family holdings in the H.J. Heinz Co. - Heinz championed some of the most costly tax breaks written into the 1986 act. A single concession was worth upward of $400 million to the country's largest steel companies.

The major steel producers, obviously, could appeal directly to Heinz

because, even in the declining steel economy of Pennsylvania, the industry has retained its influence. The Pittsburgh lawmaker was a member of the Senate Finance Committee that helped write the tax law.

While the steel industry enjoyed direct access to Heinz's office, not all industries have such a ready friend. Instead, many businesses hire lawyers with tax expertise gained during years of working for Congress on tax legislation.

Keith D. Martin is a lawyer with the Washington office of the New York law firm, Chadbourne & Parke. Before entering private practice, Martin was legislative counsel to Daniel Patrick Moynihan on the Senate Finance Committee.

Chadbourne & Parke, with Martin, represented Catalyst Energy Development Corp.; ENESCO - the Energy Systems Company Inc.; Gilberton Power Co.; Independent Power Systems International Inc.; Applied Energy Services Inc.; PLM Power Co., and Oxbow Geothermal Corp. in 1986.

A tax break in the Tax Reform Act allows the seven companies to avoid payment of more than a quarter-billion dollars in taxes.

Robert E. Lighthizer is a lawyer in the Washington office of the New York law firm, Skadden, Arps, Slate, Meagher & Flom. From 1978 to 1981, Lighthizer was chief minority counsel for the Senate Finance Committee, and from 1981 to 1983 he was the committee's chief counsel and staff director.

In 1986, Skadden Arps, with Lighthizer, represented General Development Corp., a developer of planned Florida communities.

A tax break inserted in the Tax Reform Act allows General Development to avoid payment of an estimated $11 million in taxes.

Some companies that retained former Capitol Hill aides also paid honorariums or made campaign contributions.

Such was the case with Bear Stearns Cos. Inc., Integrated Resources Inc. and Joseph Seagram & Sons Inc., which received combined tax breaks totaling nearly $100 million.

Officials of the three companies contributed to the election campaigns of certain members of the tax-writing committees. Seagram also paid speaking fees to committee members.

And all three employed John J. Salmon, a lawyer in the Washington office of the New York law firm, Dewey, Ballantine, Bushby, Palmer & Wood, to look after their interests. Before entering private practice, Salmon was a legislative aide to Rostenkowski and chief counsel of Ways and Means.

It is an old Capitol Hill tradition that those who write the tax laws one year go to work the next year for those seeking to tailor the tax laws to their own desires. What is new is that the pace of the practice has accelerated since 1981, when Congress took to rewriting the massive Internal Revenue Code every year or two.

Lawmakers often cite the need for simplification as the reason for tax-code revisions. That was especially true when President Reagan began marshaling support for the tax-overhaul movement that led to the 1986 Tax Reform Act. Declaring the system was "too complicated," the President said that Americans "often resent complexity" because "they sense it is unfair - that complexity is the means by which some benefit while others do not. "

When the President and Congress' self-styled reformers had finished, they hailed the result.

"A vastly simplified tax structure will be created for both individuals and corporations," Sen. Edward M. Kennedy (D., Mass.) proclaimed. ''Americans may not be able to file tax returns on a form that fits on a postcard, but much of the needless complexity of the current law has been removed," Sen. Chafee said.

And Sen. Lloyd Bentsen (D., Texas), then a member of the Senate Finance Committee and now its chairman, trumpeted: "Is this bill simplification? Yes, major simplification. . . . Most taxpayers will not have to pay a fortune to an accountant or a tax lawyer to make out the return. "

THE OUTCOME WAS DIFFERENT

Instead of simplifying the code, the reformers in 1986 actually rendered it the most complex ever, fueling what has become, in the 1980s, America's most explosive growth industry - the tax industry. As a result, more lawyers, accountants and tax specialists than ever are needed to interpret the law.

Who better to do that for businesses than the people responsible for writing the code in the first place?

In the 18 months since passage of the Tax Reform Act of 1986, one after another of those who helped write or fashion it have left Capitol Hill to join major law firms or corporations.

Among them was David H. Brockway, chief of staff of the Joint Committee on Taxation during the drafting of the tax act. Brockway, whose committee provided technical advice to legislators, knew more about the bill's contents than the elected members of Congress who are charged with the responsibility of writing the tax laws.

Repeatedly during congressional meetings, leaders of the tax reform drive, Sen. Packwood and Rep. Gephardt among them, deferred to Brockway when questions were raised about the legislation.

In January 1988, Brockway joined Dewey, Ballantine, Bushby, Palmer & Wood, one of many law firms that seek to mold tax laws to fit the needs of their clients.

At the time the Tax Reform Act of 1986 was being written, according to lobbying reports filed with Congress, Dewey Ballantine's clients included Chrysler Corp., which received a $78 million tax break; Beneficial Corp., which received a $67 million tax break; Tobacco Row Associates, which received an $8 million tax break; Integrated Resources, which received a $43 million tax break; Bear Stearns, which received an $8 million tax break, and Joseph Seagram & Sons Inc., which received about a $40 million tax break.

Other Capitol Hill staff members went before, and after, Brockway.

William J. Wilkins was the minority chief of staff for the Senate Finance Committee when the 1986 act was written - Moynihan hailed him as "an exemplar of public service at every stage, providing insightful, direct and accurate analysis always. "

Wilkins subsequently became the committee's staff director. In March, he announced his resignation to join Wilmer, Cutler & Pickering, a Washington law firm.

Maxine C. Champion, a member of the tax staff of the Ways and Means Committee for four years, resigned in January to become vice president for government relations for the LTV Corp. in its Washington office. LTV received a tax concession in the 1986 act.

Joseph K. Dowley, chief counsel of the House Ways and Means Committee, resigned in April 1987 to join Dewey Ballantine. Kenneth Kies, minority tax counsel for the Ways and Means Committee, resigned in January 1987 to join the Washington office of Baker & Hostetler, a Cleveland law firm.

THE ROLE OF STAFF MEMBERS

How important are the staff members on the tax-writing committees?

Not only do they draft the legislation, they also sometimes determine which individuals and businesses seeking preferential treatment will be rewarded.

During the legislative process leading to passage of the 1986 tax act, Packwood, who at the time was head of the Senate Finance Committee, said he was inundated with "roughly 1,000 requests from 94 senators" for transition rules - exemptions from the tax law. He explained what happened next:

"I did not sit down and go through all 1,000-plus requests one by one. . . . What we did is say to the staff, 'Here are the rules by which transitions are to be selected. Try to avoid violating those rules. ' By and large, they were successful. "

Sometimes, other lawmakers in critical leadership positions dictated the rules.

Thomas P. "Tip" O'Neill, the Massachusetts Democrat who retired last year as speaker of the House of Representatives, and certain unknown members of the tax-writing committees, were responsible for one of the more inequitable tax breaks in the 1986 act.

As a result of their combined influence, preferential treatment was accorded to 15 large life insurance companies, and denied to 1,800 other life insurance companies.

The tax break grew out of the insurance companies' investments in so-called market discount bonds, on which they were to pay the then-prevailing capital

gains tax rate of 28 percent. When the tax writers proposed increasing the rate for corporations to 34 percent, the insurers appealed to Congress to guarantee them the old capital gains rate.

As the 1986 bill headed for passage, all life insurance companies selling market discount bonds were to be exempted from the increase in the tax rate, a move that was expected to result in a revenue loss of $120 million.

But then revenue estimates prepared by the staffs of the tax-writing committees indicated the cost of providing relief to all insurers would be much higher than originally thought.

When one proposal was made to scale back the relief for all companies, O'Neill objected, insisting that the John Hancock Co., in his native Boston, be fully exempted from the higher capital gains rate.

This forced the tax writers to pick and choose among insurers, rather than give a blanket exemption. In the end, they distributed the tax break to only 15 large firms.

A spokesman for one life insurance company left out by the bill explained: ''I think a lot of congressmen were genuinely embarrassed when they saw the bill come out on the life insurance companies. The idea was never to pick out 15 people out of an industry of 1,800. But that's what the staff did . . . "

What followed was inevitable. The rest of the industry mounted a lobbying campaign that produced a new provision, one extending the benefit to all life insurance companies. It is awaiting congressional action.

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For the business or individual taxpayer in search of special treatment, persistence sometimes is as important as access. For the lawmaker seeking to accommodate that business or individual, imagination is sometimes as important as persistence.

Some special-interest tax breaks never make it into the printed bill, and others that do are deleted before final passage, all for a variety of reasons.

In some cases, the lawmakers pushing the preferential provisions lack the necessary clout in the all-important tax-writing committees. In other cases, opposition to a particular provision is too overwhelming.

DEVISING STRATEGIES

Whatever the reason, once colleagues refuse to incorporate a break into a tax bill, the lawmaker devises a new strategy.

Most often, he arranges to have the controversial provision inserted in another bill, often with a title that implies it is unrelated to the income tax, in the hope that it will escape the attention of opponents.

There was, for example, the Recreational Boating and Safety Act of 1980 that was to promote boating safety. But it also contained a provision that granted the investment tax credit to forest-product companies and landowners for planting trees.

There was the Black Lung Benefits Revenue Act of 1981. It was intended to bail out the financially strapped disability trust fund that paid benefits to about 200,000 disabled coal miners and their survivors.

But it also contained a provision that increased the unsubstantiated business-expense deduction from $3,000 to about $20,000 for members of Congress. This meant lawmakers could spend that sum for most any purpose and write it off on tax returns.

(When the details of the tax gimmick emerged after its passage, the public uproar was so great that lawmakers tripped over one another in a stampede to denounce the offending provision and the news media for focusing attention on it, although not necessarily in that order. It was subsequently repealed. )

And there was the Omnibus Budget Reconciliation Act of 1986. It was intended to pare the deficit through a combination of spending cuts and the sale of government assets.

But it also contained a provision that preserved the investment tax credit for an Iowa truck-leasing company, although the Tax Reform Act passed several weeks earlier had canceled that credit for most all other truck-leasing companies and businesses.

The story behind that provision attests to the persistence of both the taxpayer and the lawmakers who set out to win the tax break for him.

THE RUAN COMPANIES

From an office in Des Moines' 36-story Ruan Tower, the tallest building in Iowa, John Ruan directs a network of trucking, leasing, real estate, banking and insurance companies.

Not all has gone well in his mini-empire in recent years. Ruan's Carriers Insurance Co., which once provided liability coverage to the long-haul trucking industry, was ruled insolvent in 1985 by the Iowa Department of Insurance.

Policyholders and creditors filed claims amounting to $117 million. In a civil lawsuit, state insurance authorities accused Ruan and three associates on Carriers' board of "gross negligence" and "self-dealing. "

The action, which is still pending in Iowa District Court, seeks to make Ruan and his associates in Carriers liable for $63 million in damages to policyholders and creditors.

The Iowa insurance commissioner contended that Carriers filed reports with state authorities indicating that the company was in sound financial condition, while, in fact, it was insolvent. Ruan denied the allegations in court papers.

During the same period that Ruan's Carriers Insurance Co. was collapsing, his truck-leasing company was embarking on an ambitious expansion plan.

Ruan had been developing a new generation of long-haul vehicles, called mega-trucks, that would travel up to a million miles with a minimum of maintenance. Orders for a new fleet were placed in 1985, but full delivery was not expected for two years.

Like hundreds of thousands of other corporate and individual taxpayers who made similar capital investments that year and early in 1986, Ruan based his decision on the existing income tax law, which allowed a 10 percent investment tax credit for the purchase of equipment.

When Congress rewrote the tax code in 1986, it not only repealed the investment tax credit, it did so retroactively to Jan. 1, 1986.

As a result, all those businesses and individuals who had ordered equipment based on one law, and did not receive it in a specified period, suddenly were confronted with an unexpected 10 percent increase in the cost of doing business.

For the majority, there was nothing they could do except absorb the costs.

But it was not the case for Ruan, who secured an exemption from the tax law, allowing his company to claim the investment tax credit denied to others.

As might be expected, other trucking companies were dismayed that Congress extended a tax break to Ruan, thereby providing the Iowa company with an economic advantage over its competitors.

Larry Miller, president of Ruan Transportation Systems Inc., defended the exemption.

"They (other trucking companies) had the same right to do exactly what we did, and apparently no one did to my knowledge. . . . It enabled us to get what we had coming to us when we ordered the trucks. "

As pieced together from congressional documents and interviews with those involved, here is what happened:

Because Congress intended to repeal the credit retroactively to Jan. 1, 1986, anyone who had ordered trucks or equipment but had not taken delivery by a fixed date would be affected.

Enter Charles Grassley of Iowa, a Republican member of the Senate Finance Committee. Grassley asked those drafting the credit repeal to write in an exception for Ruan.

When the Senate tax-reform bill finally was printed in May 1986, the Ruan provision was missing. That was when Grassley enlisted the aid of Bob Dole, then Senate majority leader. Helping get a tax break for an Iowa trucking company would be a plus for Dole, who was at the time a budding GOP presidential candidate looking for a good showing in the nation's first referendum for White House aspirants.

Then, too, the Ruan family was a major supporter of Republicans, having contributed more than $23,000 to various GOP candidates and committees in 1983 and 1984.

With Dole's backing, Grassley introduced an amendment - the Ruan exemption

from the tax law - saying that the provision had been "inadvertently left out" of the bill. It was incorporated into the measure that passed the full Senate in June 1986.

A conference committee then was appointed to blend together the two versions of tax revision enacted separately by the House and Senate, each with its own array of special interest deals. When the bill emerged from the conference, the Ruan tax exemption once again was missing.

Dole and Grassley next inserted the errant Ruan clause into a resolution to correct bookkeeping mistakes - misspelled names, incorrect dates and misidentified sections - in the tax bill itself. Called an enrolling resolution, it was soon laced with a new round of tax favors.

Congress balked, refusing to pass the resolution.

Undaunted, Dole and Grassley next slipped the Ruan provision into an unrelated piece of legislation - the budget reconciliation bill, which Congress enacted in September 1986.

While the Dole-Grassley action stirred controversy in Iowa, where the Ruan provision was labeled "The Tax Break That Would Not Die" by local newspapers, it attracted little attention outside the state.

And so found buried in a bill that directed the sale of Conrail, reduced government payments for cataract surgery and increased the federal debt limit was this paragraph:

The amendments made by section 201 shall not apply to trucks, tractor units, and trailers which a privately held truck leasing company headquartered in Des Moines, Iowa, contracted to purchase in September 1985 . . . "

That clause allows Ruan's company to escape payment of $8.5 million in taxes.

INTEGRATED RESOURCES

The brothers, Selig A. and Jay H. Zises, and a childhood friend, Arthur H. Goldberg, founded Integrated Resources Inc. in 1968 to sell tax shelters to wealthy investors looking for a way to reduce or eliminate their federal tax payments. (Goldberg is not the former U.S. Supreme Court justice. )

The company marketed a variety of shelters in real estate, equipment leasing, oil and gas ventures and deferred annuities, most structured in such a way as to generate paper losses that could be used to offset real taxable income.

As the company explained in its 1977 annual report:

"(Integrated's) privately offered real estate and equipment investment programs are attractive primarily to investors in high income brackets who are able to take advantage of current provisions of the U.S. Internal Revenue Code by utilizing losses and credits generated by such investments to offset income and tax liabilities arising from other sources. "

In a typical real estate or equipment leasing transaction, Integrated would arrange for a corporation to sell its headquarters building or some other asset, such as its machinery or equipment, to private investors, who, in turn, would lease the building or equipment back to the corporation.

The deals offered a little something for everyone. Investors received generous tax writeoffs. The corporation received a cash infusion. Integrated received fees for arranging the sale and leaseback.

In some cases, the Zises brothers and other Integrated executives also received interests in the partnerships and tax writeoffs.

Integrated received a big boost from President Reagan's 1981 tax-cut plan, which liberalized depreciation writeoffs and made tax shelters, especially in real estate and equipment leasing, even more attractive.

The company's revenue soared from $120.9 million that year to $322.5 million in 1983, prompting the Wall Street Journal to comment on the company's ''dazzling profits" achieved through the sale of "tax shelter

investments. "

"Integrated Resources Inc. has become extremely successful," the newspaper reported, "by helping rich people - mainly doctors, dentists, corporate executives and small businessmen - avoid taxes. "

Although Integrated's revenue reached $830.2 million in 1986, and it was publicly owned, the company remained very much a family affair of the Ziseses and Goldbergs.

In 1986, Jay Zises, chairman of the executive committee, received $1,036,882 in salary, fees, bonuses and other compensation. Selig Zises, chairman of the board and chief executive officer, received $1,008,595. Arthur Goldberg, president and chief operating officer, received $1,013,396.

Nancy Frankel, a first vice president who married Jay Zises in June 1986, received $404,000. Jeffrey Krauss, a senior vice president of three of the company's life insurance subsidiaries, and a brother-in-law of Arthur Goldberg, received $270,926 that year.

Seymour Zises, a marketing executive and insurance agent for the company and a brother of Jay and Selig, received $250,095. Bernard Zises, who located properties for the firm's investment program and was the father of the three brothers, received $138,000

Overall, the Zises and Goldberg family members collected $4.1 million in salaries, bonuses and other compensation. That was in addition to a variety of company-paid benefits.

In addition to profiting from the general boom in tax shelters through the 1970s and early 1980s, Integrated also benefited as a corporation from certain provisions in the tax code.

One of these was the ability to use an accounting method originally designed for family farmers and small businesses rather than enterprises the

size of Integrated.

When the House approved its version of the tax-reform bill in December 1985, it took away the option of financial services companies like Integrated to use the favorable cash method of accounting.

In its 1986 annual report to the U.S. Securities and Exchange Commission (SEC), Integrated listed the adverse effects the change could have:

"This provision, if enacted in its current form, would require the company to switch to the accrual basis method of accounting for tax purposes, which would result in the accleration of certain items of income and deduction. On balance, the company expects that such acceleration of income and deductions will, in the aggregate, adversely affect the Company's cash flow since certain tax obligations of the Company . . . would be currently payable. "

When a similar provision appeared in the Senate Finance Committee's bill in 1986, Integrated sought its own private tax law to cushion it from the full force of the change.

The Tax Reform Act, finally approved by Congress in September 1986, contained this obscure section:

The amendments made by this section shall not apply to contracts for the acquisition or transfer of real property, and contracts for services related to the acquisition or development of real property, but only if such contracts were entered into before September 25, 1985, and the sole element of the contract which has not been performed as of September 25, 1985, is payment for such property or services.

While it makes no mention of Integrated, that paragraph will save the company an estimated $43 million in taxes - or three times the amount of taxes it paid in 1986. A study by Tax Analysts, a Washington organization that specializes in tax analyses, showed that Integrated paid taxes that year at a rate below 13 percent - about the same rate levied on individuals and families with incomes of $25,000 a year.

Like so many other special-interest clauses, the one applying to Integrated is worded in such a way that other companies might be able to take advantage of it as well. But it was clearly Integrated that sought the provision.

The company referred to its exemption in the fine print of a stock registration statement filed with the SEC in March 1987. After pointing out that the Tax Reform Act would require companies like Integrated to change the way they accounted for certain income and deductions, Integrated said:

"However, because of special relief provisions included in the 1986 act, the company expects that such acceleration of income and deductions will not adversely affect the company's cash flow. "

It says much about how tax law is made that a company that profited from

helping others to avoid taxes received a tax break from lawmakers who said they were changing the law to prevent people from avoiding taxes.

THE SEAGRAM PARAGRAPH

Notwithstanding the amendments made by subtitle B of title III, gain with respect to installment payments received pursuant to notes issued in accordance with a note agreement dated as of August 29, 1980, where . . . such note agreement was executed pursuant to an agreement of purchase and sale dated April 25, 1980, more than one-half of the installment payments of the aggregate principal of such notes have been received by August 29, 1986, and the last installment payment of the principal of such notes is due August 29, 1989, shall be taxed at a rate of 28 percent. "

That paragraph describes Joseph E. Seagram & Sons Inc., the U.S. subsidiary of Seagram Co. Ltd., a Canadian company that is the world's largest producer of wine and distilled spirits. The billionaire Bronfman brothers own or control 33 percent of the parent company's stock.

Under Seagram's private tax law, the company is permitted to pay capital

gains taxes on one transaction at the old corporate rate of 28 percent, rather than the new 34 percent rate levied on other companies by the 1986 Tax Reform Act.

While both congressional tax writers and Seagram officials declined to place a value on the break, an Inquirer analysis suggests it could range as high as $40 million.

The lower tax rate will be applied to income that Seagram is still receiving from the sale of an oil and gas subsidiary to the Sun Co. for $2.3 billion in 1981.

According to a study by Tax Analysts, Seagram - which also owns 23 percent of the Du Pont Co. - paid taxes on its worldwide income at a rate of 7 percent in 1986.

Internal Revenue Service statistics show that was below the rate paid by people who earned $15,000 a year.

When Congress prepared to vote on the 1986 act, the tax reformers glossed over the exemptions they engineered for companies like Seagram, and

concentrated instead on glowing generalities about the overall benefits of their work.

"This tax reform bill, and the process by which it is being enacted, represents a triumph of the individual, average American over the larger special interests," said Max Baucus, Democratic senator from Montana.

"The biggest beneficiaries of this bill are ordinary taxpayers who have no access to high-priced lawyers and lobbyists," said John Chafee, GOP senator

from Rhode Island.

"We can be proud of this legislation and proud that we voted in favor of it. It is a tax bill that we can honestly describe to the American people as tax reform," said the Senate's Dole, a Kansas Republican.

Baucus, Chafee and Dole were all members of the Senate Finance Committee, all supporters of the tax act - and all received honorariums from Seagram.

GREENBRIER LEASING

Not everyone who receives preferential tax treatment contributes to the campaigns of the tax writers or hires them to speak. On occasion, just being a constituent is sufficient to bring about the same result.

Consider the case of Greenbrier Leasing Co. in Lake Oswego, Ore., a Portland suburb.

Greenbrier leases rail cars and highway trailers. All told, the company owns and manages about 10,000 pieces of transportation equipment, according to the company president, William A. Furman.

Greenbrier embarked on a major expansion in 1985 to capture more of the market in specialized rail cars to transport cargo from West Coast ports to the East.

By early 1986, Greenbrier had placed orders for 1,200 new flat cars. Then, along came the tax reform bill with its plan to scale back accelerated depreciation and repeal the investment tax credit, retroactive to Jan. 1, 1986. Furman, in an interview, explained the company's reaction:

"When the tax drafting came along, lo and behold we read it, and we saw that the date of the investment tax credit and several other benefits were changed, and they would apply to orders of equipment made only before Jan. 1, 1986. Obviously, we were concerned that we might get caught with our pants down. "

Greenbrier's problem was that it would not take delivery on 1,000 of the cars on order until after the tax incentives had been repealed or cut back.

"We would be caught with an order we couldn't perform on," explained

Furman, "because we had factored in the benefits of the tax laws as we understood them in 1985. "

But unlike other companies in the same bind, Greenbrier had a solution unavailable to others. As an Oregon company, it had access to Bob Packwood, GOP senator from Oregon and chairman of the Senate Finance Committee.

"We just wrote a letter to the senator and explained it to him, and had a member of his staff contact us," Furman said. "We made a case to our senator that it wasn't fair, that we would lose the order because the economics were all changed. So we were successful in getting some protection.

"We were very fortunate that Sen. Packwood was willing to consider the particular problems of our company. "

"I'll bet there are some transition rules that are not good ones. But, boy, I'll tell you this one - we're sure pleased that we got it."