The Internal Revenue Service has been examining whether former president Ronald Reagan and his wife, Nancy, owe back taxes on gifts -- including dresses for Mrs. Reagan -- that they received while they were in the White House, according to sources familiar with the inquiry. The investigation, which began early this year, has been conducted by the IRS's Los Angeles field office because the Reagans were determined to be California taxpayers even while living in the White House, the sources said. Part of the IRS's information comes from M. Chris Blazakis, a freelance journalist who previously worked for the designer Galanos, who lent dresses to Mrs. Reagan. Blazakis said yesterday that during the past year he has shared "detailed information with the IRS," which he said has launched a "comprehensive examination" of "far-reaching" issues involving the Reagans' possible tax liability. Blazakis is now writing a critical book about the Reagans. He said he was coming forward with the allegations to ensure that they are properly handled by federal authorities. The Reagans' tax lawyer, Los Angeles attorney Roy Miller, said yesterday he could not comment on a matter involving a client. The Reagans' spokesman, Mark Weinberg, said he knew nothing about an IRS inquiry and could not reach the Reagans for comment. A spokeswoman for the IRS also declined comment, citing privacy laws. Jill Brett, a spokeswoman for the National Archives, said IRS agents recently examined Reagan White House photographs at the archives and made some copies. She said this was done with the former president's permission. One source said the photos were copied just before Thanksgiving. Documents seen by The Washington Post indicate that some IRS officials are treating the allegations seriously, have spent considerable amounts of time on the inquiry and have obtained permission from the Reagans to examine their tax records. The Post was shown these documents on condition that they not be further identified. Such cases are often resolved without court action in negotiated settlements with the IRS. The current status of the IRS inquiry could not be determined. Blazakis is a former executive vice president of Galanos Originals, a California firm headed by designer James Galanos. Time magazine quoted Blazakis as a source for its October 1988 report that Nancy Reagan had borrowed dozens of expensive gowns from famous designers, along with jewelry and other accessories. The White House acknowledged at the time that the Reagans had not reported the gowns as loans on financial disclosure forms under the Ethics in Government Act, as Nancy Reagan had promised she would do in 1982, or declared their value as income on federal tax returns from 1982 through 1987. Several tax experts interviewed by The Washington Post last year said the dresses by Galanos, Adolfo and other designers, some of which were worth $20,000, should be regarded as interest-free loans, and therefore taxable income, to Nancy Reagan. But White House spokesman Marlin Fitzwater said last year there was "no illegality" because the White House counsel's office had determined that there were no tax consequences from the transactions. Therefore, Fitzwater said, the Reagans did not need to amend their tax returns or financial disclosure statements. Blazakis said the Justice Department is also looking into the allegations. Asked for comment, David Runkel, the department's spokesman, said last night, "This has not come to the attention of the people running the department." Typically, Runkel added, the department only acts in tax cases after a referral from the IRS. Sources said the IRS has questioned employees at the Galanos firm and U.S. Shoe Corp., among others. Paul Shaw, an adviser to Galanos, said he could not comment on the matter, as did an attorney at U.S. Shoe. Questions about Nancy Reagan's wardrobe first came to light in late 1981 after she told the White House staff she had been accepting donated clothes, including a $25,000 Galanos gown she wore to her husband's first inauguration. Galanos and other designers who provided such dresses said the loans provided them with ample free publicity. Time also reported that the First Lady had borrowed a diamond necklace and earrings worth $480,000 from a Manhattan jeweler for the 1981 inauguration. Fred F. Fielding, then the White House counsel, advised Mrs. Reagan in a 1982 letter to report loans of clothing on the president's financial disclosure forms. The 1978 Ethics in Government Act requires senior government officials and their wives to report gifts valued at more than $100 and loans with a liability of $10,000 or more. Mrs. Reagan announced soon afterward that she would no longer accept any dresses as loans, only to concede last year that she had broken "her own little rule," as then-press secretary Elaine Crispen put it. Crispen said Mrs. Reagan had returned everything she had borrowed. In her recent book, "My Turn," Nancy Reagan wrote that "because I needed clothes -- far more than I could afford to buy -- I borrowed outfits for specific occasions from some of my favorite designers and old friends. And here I made a big mistake. No, not by borrowing, but by not announcing from the start that I was going to do this, and that I would return them. "But I honestly never expected that this would be seen as a problem. Borrowing designer clothes is such a widespread and accepted practice in the American fashion industry that it never occurred to me that I'd be criticized for it." Staff writer Judith Havemann contributed to this report.
