During President Carter's White House Conference on Small Business last January, hundreds of owners of small businesses recommended legislation making them eligible for reimbursement of costs when they defend themselves against the government -- even the Internal Revenue Service -- and win.

Scores of small business people told stories about friends whose businesses went under after they were dragged into court by federal agencies -- particularly the Occupational Health and Safety Administration -- that had accused them falsely of wrongdoing. The small business people said they won their cases but lost thousands of dollars in the process.

Although the Carter administration acknowledges enforcement abuse by some agencies, it is fighting the legislation, claiming it would overturn traditional legal practices, chill government enforcement of the law and cost the government more than $100 million a year.

"Our comeback is, if it costs that much money, you're doing something wrong," said Lea Giarrusso, counsel for the House Small Business Committee.

The administration has its own reimbursement bill that has been floating around Congress for a couple of years and that in essence is the same as the one advocated by the House Small Busness Committee and small business groups.

But the Carter administration bill places on the small business person or private citizen the burden of proving the government's action "arbitrary, frivolous, unreasonable or groundless." In the bill backed by small business, the burden is on the government to prove that it had acted with "substantial justification."

"We don't know what 'substantial justification' means," said a Justice Department attorney familiar with the issue. The bill "is chilling government enforcement of the law," he said.

"We found that there is quite a bit of abuse by the agencies in their enforcement efforts," Giarrusso said. "They bring claims against people, claims that have no merit. They drag these people in court and in the end these people win, but they've lost. They were vindicated, but all the government says is 'we're sorry, we were wrong.'"

Giarrusso said that under the bill backed by small business, the money to reimburse the small business is taken from the agency's budget, which is another sore point with the administration.

"It's passage could cost United States taxpayers well over $100 million per year at a time when both the Congress and the administration are actively searching for ways to cut government expenditures," Alice Daniel, assistant attorney general, testified before a small business subcommittee last May. The best way to eliminate agency abuse is to modify or drop indefensible regulations and improve the regulatory process, Daniel said.