The Wall Street star who started catalyst energy

James J. Lowrey was one of Wall Street's rising young stars in the 1970s. As a partner in the brokerage house of Salomon Brothers, his taxable income ranged up to a half-million dollars a year.

To maintain a physical appearance in keeping with the world of high finance, Lowrey regularly had his fingernails manicured, his hair styled and his shoes shined.

But manicures, haircuts and shoeshines do not come cheap on Wall Street.

Internal Revenue Service audit records show that during 1977 Lowrey wrote off as a business deduction on his federal income tax return $30,000 for personal grooming expenses - a sum that even now surpasses the total income of more than half of all U.S. families.

The writeoffs for manicures, haircuts and shoeshines, along with a number of other deductions, caught the attention of IRS auditors, who issued a deficiency notice stating that Lowrey owed $127,892 in back taxes for four years in the 1970s.

Lowrey challenged the IRS claims in U.S. Tax Court, contending, in part, that his grooming payments were "ordinary and necessary business expenses. " His case is still pending.

Whatever the outcome of his personal tax dispute, Lowrey has fared quite nicely with those who write the tax laws.

A company that he founded in 1982, Catalyst Energy Development Corp., now known as Catalyst Energy Corp., is one of hundreds of alternative-energy businesses that qualified for tax concessions written into the Tax Reform Act of 1986.

But of all those companies, Lowrey's Catalyst was one of the dozen most successful in the congressional tax-break game. Investors in its energy projects ultimately may avoid payment of an estimated $187 million in income taxes.

Lowrey could not be reached for comment.

As for Lowrey's personal tax dispute, the IRS contends that he underreported his taxable income for four years in the 1970s by claiming excessive or improper deductions.

In addition to his $30,537 writeoff for personal grooming expenses in 1977, and $29,143 for the same purpose in 1978, the IRS disallowed a number of Lowrey's other deductions.

For 1977, for example, the IRS denied a $24,324 deduction that Lowrey claimed for parking his car and a $27,794 loss he wrote off from breeding horses.

The IRS also questioned a $491,630 deduction for interest in connection with Lowrey's commodity investments, and other losses from assorted Salomon Brothers transactions in the 1970s.

Lowrey contends in legal papers filed in the Tax Court action that the IRS erred in all its calculations. He asserts that he overpaid his taxes during the years in question.

And in any event, he argues, the IRS made a mistake in finding that he owed additional taxes because the statute of limitations had expired for the 1970 years.

Some of the major partnership deductions questioned by the IRS grew out of commodity straddles, a widespread practice during the 1970s in which sophisticated transactions were structured to create paper losses with little or no economic risk.

The losses were used to offset otherwise taxable income, enabling affluent people to reduce or eliminate their tax bills. The IRS, in its audit of Lowrey's returns, disallowed straddle deductions, saying that "no genuine loss occurred. "

In 1981, years after straddles first appeared, Congress belatedly barred them. Three years later, in another of those special-interest provisions, Congress granted amnesty to professional traders who had lost their tax cases in court and had been ordered to pay taxes on the paper losses.

The amnesty provision, like many of the private tax provisions in the Tax Reform Act of 1986, was the handiwork of Rep. Dan Rostenkowski (D., Ill.), the chairman of the House Ways and Means Committee.

The tax claims were initiated long after Lowrey had left Salomon Brothers. In 1979, he established his own financial advisory company, James J. Lowrey & Co. Inc., to counsel state and local governments on raising capital.

Two years later he created J.J. Lowrey & Co., a partnership that would

serve as an investment banking firm, trade government securities and engage in ''hedging and arbitrage activities," according to a partnership document. Lowrey sought to attract wealthy investors willing to put up a minimum of $150,000 in cash or securities to join the partnership.

In 1982, about a year after he began selling partnership interests, Lowrey and two other former Salomon Brothers associates established Catalyst in New York.

He and his colleagues have done so well financially with Catalyst that some of those who invested in his partnership, J.J. Lowrey & Co. - which has no connection with Catalyst - have sued him, contending that he neglected their interests.

In a lawsuit filed in U.S. District Court in New York, the dissident partners allege that after Lowrey and his associates had obtained the investors' money, they engaged "in a wrongful course of conduct which involved the organization or operation of Catalyst Energy Development Corp. . . . "

They contend that Lowrey's accumulation of Catalyst stock was "made possible by the diversion of assets and resources, including Lowrey's efforts and time, from the limited partnership, and the systematic disregard of the business of the limited partnership combined with a plundering and waste of its assets, causing it to become virtually worthless. "

Lowrey sees it differently. A legal memorandum filed on his behalf dismissed the lawsuit as "a garden-variety claim of mismanagement by certain disappointed investors . . . unhappy because the investment failed to meet their expectations. "

It noted that the offer to invest in the partnership, extended to "high net-worth investors," was clearly labeled as "highly speculative" and involving "substantial risks. "

The memorandum also stated that Lowrey had never promised to devote full time to the partnership and that the partnership agreement allowed him to ''engage in other business activities, whether or not such activities are directly or indirectly in competition with the partnership. "

The lawsuit is still pending.