08/19/96 THERE COULD BE A STAMPEDE FOR TAX SHELTERS

THERE COULD BE A STAMPEDE FOR TAX SHELTERS

Bob Dole says the tax cuts in his economic plan will ``unleash the full potential of the American people once again.'' But some tax experts believe the proposal could unleash something else: new shelters for wealthy investors.
Certainly, no one is predicting a return to the classic tax scams of the 1970s and 1980s. Then, investors plowed money into almost-certain money losers such as oyster farms and vacant office buildings, claiming generous passive-loss allowances that let them shelter other income. Congress closed most of those loopholes with tax reform in 1986.
But Dole's plan offers a tantalizing opportunity: He would slash the tax rate for capital gains in half, to 14%, while lowering the top marginal rate for ordinary income only slightly, to 34%. For tax pros, that's going to be an almost irresistible invitation to devise new ways to leverage the disparity. ``There would be a greater incentive to camouflage ordinary income as capital gains,'' predicts John Wilkins, a former Treasury Dept. tax policy official.
How would the new tax-avoidance strategies work? Some analysts predict renewed interest in real estate plays. Another possibility: Derivatives crafted by Wall Street wizards that let investors take short-term losses at the 34% rate for ordinary income while booking profits at the 14% capital-gains rate.
``OPEN SEASON.'' Of course, there will be plenty of economic benefits from Dole's tax plan. Managers would be encouraged to take more of their salary as stock or options, which would be taxed as capital gains--presumably giving them greater incentives to perform well. And investors would have more reason to buy growth-company stocks that don't pay dividends.
But the biggest winners of all may be the brassy tax lawyers who lost many of their lucrative shelters over the past decade. And Dole's plan to get rid of thousands of Internal Revenue Service auditors would leave fewer tax cops to crack down on shady schemes. Warns Deputy Treasury Secretary Lawrence H. Summers: ``It could be open season for tax shelters.'' Have your calculators at the ready.
By Dean Foust in Washington