The chief of the Internal Revenue Service warned yesterday that IRS is cracking down on the use of commodity trading plans to avoid income taxes.

IRS Commissioner Jerome Kurtz said the crackdown is aimed at taxpayers who invest in silver and other commodities in a deliberate effort to create artificial losses for tax purposes.

"Taxpayers claiming tax benefits from these transactions will face a substantial likelihood of having their returns selected for audit and their claims of artificial losses disallowed," Kurtz testified at a congressional hearing on silver trading.

Deputy Treasury Secretary Robert Carswell also complained of irrigularities in trading of contracts for future delivery of silver and other commodities.

Kurtz and Carswell appeared before a House government operations subcommittee headed by Rep. Benjamin Rosenthal (D-N.Y.).

Before the House agriculture subcommittee, headed by Rep. Ed Jones, (D-Tenn.), officials of the big commodity exchanges defended their role in the rise and fall of silver prices and said no new federal regulations are necessary.

Kurtz said the target of the IRS action are what are called "silver straddles" in which an investor simultaneously buys and sells contracts for delivery of future next year.

Whether the price of silver goes up or down, the investor makes a profit on one deal and loses an identical amount on the other. The loss can be written off immediately as a tax deduction, while the profit can be delayed until the following year and claimed as a long-term capital gain at a lower tax rate.