A bureaucratic tug-of-war between the Department of Commerce and Internal Revenue Service has strangled a New York-based knitwear company.

Irwill Knitwear Corp., a manufacturer of sweaters and sportswear for 59 years, was evicted from its rented premises in New York last week. It's phones have been cut off, at least for incoming calls. And its 2,000 employes, many of whom voluntarily worked without pay for three months in an attempt to keep the company alive, are filing for unemployment.

Just another tough-luck recession story? It would be, except for the prominent role played by the federal government, particularly the IRS, in the company's demise.

Two years ago, the Department of Commerce found Irwill eligible for trade adjustment assistance, federal aid given to companies hurt by what the government judges to be unfair international trade.

Irwill's "core business" was sweaters. And the domestic sweater business was in bad shape, largely because of the cheaper, imported knitwear flooding the U.S. market.

According to government and company memos in the case, Irwill stopped manufacturing the kinds of "low-end" items that were the targets of the imports, and started producing "high-end" goods, such as sportswear. The strategy seemed promising.

But the previous damage done to the company's balance sheets by what the government said was unfair trade needed to be repaired to help the company return to full health, according to Irwill President R. Fulton Macdonald. That's what the trade assistance money was supposed to do--provide working capital to help the company recover.

The money, about $900,000 in federally backed loans, never came.

In the first place, the government took two years to give the loan tentative approval, an action taken by Commerce's International Trade Administration in January 1982.

The loan approval was made on condition that Irwill's prior debts be subordinated, that is, held in abeyance, until the company had a chance to turn itself around. Many of Irwill's commercial creditors agreed to this. The company's suppliers made similar agreements, as did Irwill's employes, who forfeited pay.

The IRS said no.

Macdonald said his company fell behind on federal withholding taxes, by about $150,000, while waiting for approval of its Commerce loan. Penalties and interest on that amount pushed the company's IRS debt over $200,000. Friends and relatives of Irwill officials lent and donated $300,000 between 1980 and 1982, but that was not enough to meet continuing expenses.

"That $900,000 would have been enough to get the company going again," said Charles Ludwig, Irwill's attorney. But Commerce refused to guarantee the loan as long as the IRS threatened to take out its $200,000 as soon as the loan was made, Ludwig said.

"We tried everything to reason with the IRS," Ludwig said. In July, the company even offered to enter a monthly payment plan with the government, with installments ranging from $5,000 to $10,000 on a graduated basis over thirty-six months.

But the IRS refused to budge. A last-ditch deal for a $75,000 off-the-top payment to IRS, accepted in Washington, was vetoed by the New York IRS office. Ludwig quoted the New York officials as telling his clients, " 'we don't care if you go out of business. We want our money.' "