U.S. District Court Judge Gerhard A. Gesell yesterday upheld the right of the Social Security Administration to review income tax records of welfare recipients to find out if they are cheating the government.

In a one-page order, Gesell found "groundless" the claim by lawyers for welfare recipients that such use of tax records violates privacy protections in the 1974 Privacy Act and in the 1976 Tax Reform Act.

He also said he lacked jurisdiction in certain aspects of the case.

The ruling is "unprecedented," according the government's lawyer, Assistant U.S. Attorney Royce Lamberth, who said the question of whether tax forms can be used to determine welfare eligibility had never been tested in court.

The suit arose from a Social Security Administration decision last month to mail forms to all of the 4 million aged, disabled and blind recipients of Supplemental Security Income.

The forms asked their consent to have Social Security officials check IRS records about them submitted by third parties.

In particular, the officials wanted to review Form 1099, supplied by banks and corporations to document a person's unearned income in the form of interest or dividends.

The agency is trying to crack down on an estimated 88,000 of the program's beneficiaries receiving about $140 million illegally each year because they have assets beyond the limit of $1,500 per person.

"Right now when a person applies for SSI we call the banks in his or her neighorhood to verify the statements about assets," SSA Deputy Commissioner Paul Simmons said. "It's kind of a crazy, hit-or-miss way to do it. This new program is a way to get that same information automatically."

Several groups representing recipients immediately went to court, claiming that the SSA did not have the power to ask for such information and that the consent forms were vague, did not adequately inform recipients whether filling them out was mandatory or voluntary and did not spell out that those who refused to fill out the forms would have their benefits terminated.

All of these inadequacies, the plaintiffs' brief claimed, violated the Privacy Act and the Tax Reform Act, which set forth narrow circumstances under which government agencies can gain access to an individual's tax information. The plaintiffs also said the plan to cut off benefits to those who do not sign the waiver violated due-process guarantees of the Constitution.

Last month Gesell issued a temporary restraining order blocking the agency from cutting off benefits to those who refuse to sign the waiver, but yesterday he threw out the case.

His order, with no opinion rendered, did not elaborate on his reasoning. It did allude, however, to jurisdictional problems, an apparent reference to the fact that recipients who face the prospect of having their $284-a-month benefits terminated should exhaust the available administrative hearing procedure before seeking relief in court.

Gesell's order then went beyond the jurisdictional question, saying that "the constitutional claims lack merit" and that "plaintiffs have no liberty or property interest in third-party tax return information relating to their eligibility for benefits and that plaintiffs' statutory claims are groundless."

Bruce Fried, a lawyer for the National Senior Citizens Law Center, said he was surprised by the ruling and indicated that he is considering an appeal.

"This is the first occasion we know of that people applying for benefits are forced to disclose information that is otherwise confidential," he said.