What does a company do if its business is putting together tax shelters when the Internal Revenue Service is hammering hard against shelters and pending changes in the tax laws threaten to reduce their attraction for high-income individuals?

If the company is the Finalco Group Inc., it gets out of the tax shelter business as fast as possible.

Three years ago, Finalco did almost nothing else but put together what it calls "tax-advantaged" leasing deals and what laymen call tax shelters. In nearly all the deals, Finalco assembled a small syndicate of well-heeled investors who bought International Business Machines computers, then leased the computers to companies. Today, according to Finalco Chairman Jon J. Prager, less than 20 percent of its business involves creating tax shelters for high-income investors.

Prager said the company was beginning to shift its emphasis from tax shelters before the IRS made the company the first target of the government's crackdown on tax shelters. In December 1983, the IRS said Finalco was being examined to see whether it produced "abusive" tax shelters -- those that held out no hope of gain to the investor but were designed solely to spit out tax losses.

Finalco was cleared by the IRS last May. But the IRS investigation came at year-end, just as the tax-shelter business hit its peak. A number of customers bailed out of the Finalco programs -- leaving the company with millions of dollars of equipment it had purchased for resale to the syndicates.

Profits plunged in the firm's fiscal 1984 -- which ended June 30, 1984. Prager said the IRS investigation also absorbed a good deal of Finalco's time and energy and delayed its transformation from a tax shelter promoter to a broader-based equipment and consulting company.

Finalco has not abandoned the leasing business -- far from it. But Finalco now is creating leasing programs that are aimed at producing profits instead of tax losses -- what Prager called operating leases, rather than tax-shelter leases.

It still puts together leasing deals with large institutional investors, such as commercial banks, putting up the bulk of the funds to purchase equipment that is then leased to a user. But the company is moving into new lines of business that are weaning it off tax shelter promotion and, not coincidentally, spreading its income throughout the year rather than concentrating it in the weeks just before the New Year.

Finalco's new projects include:

* Creating leasing programs aimed at small investors in relatively lower income tax brackets. The programs, which Prager said resemble mini-leasing companies, are designed to produce high income and are targeted for investors in tax brackets lower than 30 percent as well as those interested in Individual Retirement Accounts. The first of these -- which took in $24 million in $500 investment increments -- went on sale in November 1983, about a month before the IRS announcement. The second, which will take in as much as $100 million before closing itself to new investment, went on sale last month. Finalco manages these funds continually, much the same way a mutual fund manager manages the stocks in the fund's portfolio.

* Advising companies on acquiring equipment -- for example, on what type of telecommunications systems to install and whether to lease or buy them.

* Buying and selling used equipment -- remarketing in the jargon of the trade. Remarketing always has been a part of Finalco's business. When the lease financed by a tax shelter syndicate expired, Finalco had to find a new company to lease the equipment or buy it. Now, however, Finalco is buying used equipment and reselling it, even when the company was not involved in leasing it. Prager said Finalco recently bought computers that Delta Airlines no longer needed and, a few months later, found a buyer. He said the transaction earned Finalco a $700,000 profit.

The company also is developing expertise in renting types of equipment other than the IBM mainframes that were the bulwark of its tax shelter programs.

As recently as 1981, computers -- electronic data processing equipment -- accounted for 99 percent of the equipment that Finalco bought and leased. During the 18 months ended Dec. 31, 1984, electronic data processing equipment accounted for less than 50 percent of its business.

Finalco now deals in airplanes, medical equipment, telecommunications equipment, computer-assisted design and computer-assisted manufacturing equipment. The company has even ventured into leasing modular office buildings that can be set up quickly and taken down easily. The modular buildings (which are like mobile homes) often are used by government contractors that need to identify all their individual costs for a specific contract. Prager said they often find it useful to lease all the buildings they need for the duration of a contract.

The new Finalco is a different kind of company than the entrepreneurial tax shelter promoter it had been in the 15 years since its founding in 1968.

The income funds require constant management -- not unlike a traditional mutual fund. As the company moves further and further away from tax shelters, the residual (resale) value of equipment at the end of a lease becomes crucial to its profits, as well as its ability to attract big investors, such as banks, as partners in the leasing deals. As it expands its operations to include wider varieties of equipment, it needs a bigger sales force. It also has had to add accountants and attorneys. It must oversee its consulting business.

"There are more professional managers, more levels of reporting, more functional specialists," Prager said. "Finalco's success depends upon its ability to manage talent and grow new areas of business," he said.

A growing Finalco, which now has about 240 employes, needs more managers and fewer entrepreneurs. "I have to think twice so I don't get in the way of my managers," said Prager, a co-founder of the firm.

Prager said Finalco has begun to recover from the devastation that followed the IRS probe into its tax shelter packages. Prager said the investigation "cost tons of earnings and credibility" and depressed the price of its stock -- which was sold to the public for the first time in August 1983.

Finalco earnings appear to be on the rebound, although far below the $6.1 million the company earned in its fiscal year ended June 30, 1983. Last year, after the IRS investigation drove away most of its tax shelter customers, earnings plunged to $2.1 million. For the first nine months of its current fiscal year, Finalco has earned nearly $2.8 million.

Its stock price, however, has not recovered. Investors paid $13 for a share of Finalco when the company made its first public stock offering in August 1983. Last week Finalco closed at $4.

"We've gotten no significant support from Wall Street," said Prager. "We hope to issue commercial paper [short-term, unsecured borrowings that are the corporate equivalent of an IOU] so more Wall Street firms of size will be familiar with us."

In addition to the IRS probe of Finalco's tax shelters, Finalco and the IRS have been involved in a dispute over the company's back taxes. Last month, the company announced that it had agreed to pay $1.8 million in taxes owed for the years 1977 to 1979.

Finalco is not alone in the $250 billion leasing industry. There is uncertainty about the effects of the president's proposed tax changes -- which, if enacted, would reduce the value of the investment tax credit -- and about whether the industry will have to give up some of its profits to attract third-party investors (like institutions) to replace tax-shelter investors who were less concerned with income than with losses.

But at least one brokerage firm -- St. Louis-based R. Rowland & Co. Inc. -- is high on Finalco stock. The company's director of research, Carl F. Campbell, said Finalco, despite the stigma of the IRS investigation, is a "respectable, well-run company, the stock is cheap and we believe the business can be adapted profitably to a situation where tax shelter benefits are of reduced importance."

Since its founding, Finalco has written leases with a value of about $1.5 billion, most of them related to tax shelters. "Now we're an operating company that dabbles in shelters," Prager said.

He said that with hindsight, it is clear that Finalco never should have concentrated so heavily on leasing mainframe computers. Mainframes, the central processing unit in a computer system, grow obsolete almost overnight, and their value for a second lease or resale dwindles sharply.

On the other hand, he said, peripheral equipment, like tape drives, maintains its value for a long period of time. IBM mainframe computers have a life cycle of about three years. In contrast, an IBM tape drive introduced in late 1973 still can be sold for about 60 percent of its list price.

In 1980, central processing units accounted for 95 percent of the computer equipment that Finalco purchased. Today, mainframes account for only 8 percent.

Prager said the publicly sold income funds aimed at smaller investors have first crack at any equipment Finalco puts out on lease unless the funds already are overloaded with the particular type of lease or equipment or have run out of investment money. Then Finalco's private placement customers -- the smaller syndicates or institutional investors that do not have to be registered with the Securities and Exchange Commission -- have next crack at the Finalco leases. If neither the income funds nor the private placement customers want the equipment, the lease becomes part of Finalco's portfolio. Finalco has about $150 million of equipment in its own portfolio.

He said the two income funds -- the first is closed to new investment, the second went on sale last month -- will be able to buy about $200 worth of equipment for each $100 actually invested. He said the leases generate a substantial amount of income, some of which is returned to the investor, the rest of which is used to buy more equipment.

He said the funds will maintain only short-term leases, none of them longer than 36 months, to ensure that they are getting optimum rent. Leased equipment is regularly moved from one location to another or sold at the expiration of a lease. He said the funds will continue to buy equipment for the first seven to nine years of their existence, then stop and let the funds wind down -- first releasing and eventually selling the equipment.

He said the plan calls for returning about 15 percent a year to investors for the first few years, then increasing to 20 percent for several years. In the final years, as the fund stops buying new equipment, returns are supposed to exceed 20 percent, Prager said.

Prager said that the lease programs aimed at smaller investors not only give Finalco a steady source of management income -- rather than concentrating it in year-end tax-shelter season -- they also give Finalco a wider base of individual customers who are likely to be a constant source of business.

The desire for profits is continuous. The desire for losses is generated by an individual's tax picture in any given year.