State Department classified documents discussing allegations of bribes by American businessmen to Bahamian government officials, including Prime Minister Lynden Pindling, have become the center of a legal battle here.

Part of a bundle of documents connected to Project Haven, a decadelong Internal Revenue Service investigation of offshore tax havens, the papers are being sought by Chicago tax attorney Burton Kanter, who was a target of the controversial investigation.

The documents reportedly also show that a U.S. agent bribed a Bahamian customs official as part of the investigation.

Government probers have alleged that Kanter and business associates set up the now-defunct Castle Bank & Trust Co. Ltd. of Nassau in an effort to create illegal tax dodges for wealthy clients.

Although Project Haven has resulted in dozens of indictments and several tax fraud convictions -- including one of Kanter's law partners -- the investigation became controversial when it revealed in 1973 that an IRS informant had taken documents from a Bahamian banker's briefcase while the banker was in Miami and out on a date with a female IRS informant.

That briefcase incident resulted in a ruling from a federal judge in Cleveland that much of the investigation may have been tainted because many of the leads toward eventual indictments came from the briefcase data, which included a list of account holders at Castle.

In a Freedom of Information Act request, Kanter sought documentation of allegations that U.S. officials had also resorted to bribing Bahamian government officials in an effort to gain carefully guarded banking information about Castle business.

Disclosure of the documents sought by Kanter, including a diplomatic cable discussing the allegations of illegal payoffs, would "have had a bombshell effect," according to an affidavit filed by Viron P. Vaky, assistant secretary of state for inter-American affairs.

Vaky said the documents sought by Kanter "deal with the ongoing Internal Revenue Service investigations of possible tax fraud by Americans in the Bahamas and comments on Bahamian politics."

Sources close to the investigation told The Washington Post yesterday that the documents involved discuss communications between the two governments concerning a bribe paid by an IRS agent to a Bahamian customs official, which touched off a diplomatic scuffle between the two nations.

Also involved were allegations received by the IRS and Justice Department, but never proven, that several high-ranking Bahamian officials, including Lynden Pindling, had accepted bribes from U.S. businessmen and bankers using Nassau tax havens. Pindling has denied all of the allegations.

"We did receive allegations that high Bahamian officials had been paid off," a source said. "And we referred all of those allegations to the State Department immediately, including our concern that some of the information might eventually come out in court."