In December 1977, three Florida attorneys and a former judge donated thousands of carats of aquamarines, tourmalines, amethysts and topaz to the gem and mineral collection of the Smithsonian Institution.

In recognition of their gifts they were presented gold, silver and bronze medals and inducted into the Smithsonian honorary society.

Two were among the major donors honored at a black-tie banquet hosted by Chief Justice Warren E. Burger, Smithsonian chancellor, and Smithsonian Secretary S. Dillon Ripley.

Each of the four donors had deducted his part of the gifts from his income taxes as charitable contributions appraised at five times the amount they had paid for the stones less than one year earlier. The gifts cost about $70,000 and the donors took $350,000 in tax deductions over the next two years--a savings of nearly $100,000 in taxes (above and beyond their $70,000 investment in the gems).

The Internal Revenue Service has begun a nationwide crackdown on what the agency alleges are gem and mineral tax shelter abuses, many of them at the Smithsonian, and has challenged one of the Florida lawyers in tax court, calling his tax deduction a "scam" and attacking "the sham nature of this entire transaction."

In an Aug. 16, 1982, tax court brief, the IRS said "high-bracket taxpayers" had obtained "abusive, unwarranted monetary benefits from a visible exploitation of charitable contribution provisions." The IRS contends the high appraisals are a "total absurdity," and that a rapid five-fold increase in value is simply not believable.

Donors and their lawyers argue that such contributions are perfectly legal tax avoidance investments, that Congress intended to provide tax benefits as incentives for private support of such public institutions as the Smithsonian. Donors say the deductions were based on independent appraisals made by experts not affiliated with the Smithsonian and that any disputes with the IRS are civil tax matters to be resolved in court.

In recent months IRS agents, armed with 1981 and 1982 lists of donors to the Smithsonian gem and mineral collection, have targeted dozens of people across the country for possible audit, according to IRS memos and interviews.

Tax deductible donations have long been a mainstay of museums, but Smithsonian officials say the national museum's gem and mineral collection has received more than any museum in the country.

"The greater part of gem gifts that have been given in the past six or seven years have come to the Smithsonian, which I think is no accident, because I chased them," says former gem and mineral curator Paul Desautels.

"I'm not so naive as to think most gifts given to museums aren't tax shelters," says Desautels. "They certainly are. They not only are now, but always have been . . . . You can tell why the gifts are given by the fact they come in in November and December of the year, end of the tax year. They don't come in July. I can put two and two together."

Dan Appleman, former chairman of the museum's mineral sciences department, describes the scene at the end of the year as gem and mineral gifts came in:

"There would be dozens and dozens of such things piling up. I mean maybe scores of gifts, some of them astonishing, magnificent things. It was like watching the treasures pour in, you know, Aladdin's cave or something, incredible stuff . . . . It certainly strained the system that we had just to get the stuff processed."

An in-depth examination by The Washington Post of internal museum documents, IRS records, and interviews with curators, auditors, administrators and donors details the substantial role tax shelters have played in building the national collection into the finest assemblage of rare gems and minerals in the world.

In their zeal to expand the collection, some Smithsonian officials allowed the institution to be used as a private tax shelter by some of its most prominent donors--doctors, lawyers, bankers, businessmen and investment groups.

This is the story of some of the stones in the Smithsonian collection, and of those who gave them. Among them:

* A 292-carat blue topaz, given by Bell Laboratories executive Joe H. Mullins. Mullins said he purchased the stone for about $12,000 and about one year later deducted it from his income tax at $59,130--nearly 500 percent what he paid for it. That value, he said, was determined by independent gem experts. (The stone, like 97 percent of the gem and mineral specimens at the museum, is not on display, and remains in a drawer in the Smithsonian's vault.)

* A 75.1-carat cerussite and a 48.25-carat petalite, given by Charles DeBoer, an Eastman Kodak research associate. DeBoer said the two stones cost $5,000. The appraised value at which he said he deducted those stones was $22,600--450 percent what he paid for them.

* A 6.41-carat sapphire, a 7.65-carat sapphire, and a 100-carat rubellite given by Bruce Dahrling, an eye surgeon from Chattanooga, Tenn. The IRS has preliminarily disallowed all of the $37,175 deduction Dahrling took for the gift. In recent years Dahrling says he has taken more than $150,000 deductions for his gifts--between 200 and 300 percent what he paid for the stones. His mother and stepfather are also Smithsonian gem donors. The IRS is challenging the amount of all of these deductions.

"It's a harassment campaign," says Dahrling. "Yeah, there's a tax advantage in doing it, but the tax advantage is written into the law . . . now the IRS is running absolutely contrary to that by saying, 'Okay, we're going to take all these donors and kick them in the head.'

"I think that's what we're looking at, a 'baby-bathwater scenario' where they just chuck the whole thing because of a couple of abuses which were probably real," says Dahrling. Gift-Giving Structure in Peril

Today the gift-giving structure is in peril. The IRS crackdown and increasing Smithsonian fears that its role in possibly abusive tax shelters could tarnish the institution's image have had a dramatic impact on donations. John White, curator-in-charge of gems and minerals, estimates that the number of donations offered to the collection in 1982 fell by 80 percent from the preceding year, and the number of specimens actually accepted dropped from 1981's total of 442 to last year's total of 3.

Smithsonian officials say they have no responsibility to consider the tax consequences of gifts the institution receives and Secretary Ripley says it would be impractical and unworkable for curators to try to police appraisals on donations. Museum records show that neither Desautels, nor any other Smithsonian official has taken part in appraising or confirming the values placed on gem donations.

"It's between the taxpayer and Internal Revenue," says Desautels. "I have nothing to do with it. All my interest is in the materials. If we need it in the collection, what difference does it make what the value is?"

Desautels, who retired from the Smithsonian last year, says he actively solicited contributions by touting the tax benefits.

Says Desautels: "I used to make hay with that because I could frequently tell people in such a situation that maybe the best return to you would be to give it away because the cost of selling it and the return for cash would be so low that you'd be better to give it away--take the tax deduction and make more money in the long run."

Peter Embry, curator of minerals at the British Museum, which is subject to vastly different tax laws, says such deductions are a costly and inequitable way to build a collection. "The tax deduction has resulted in a benefit to the so-called 'benefactor' who has the glory and the tax profit. In point of fact it is the taxpayer who has paid for the bloody specimens. If the taxes haven't been paid, they have to be paid by someone. In the long run it's John Doe Taxpayer who pays for it."

As a federal institution, the Smithsonian's position in the museum world and in the public eye is unique. Overseeing the institution is the Board of Regents composed of the chief justice, the vice president, three members of both the House of Representatives and the Senate, and nine private citizens.

Constitution Avenue is all that separates the two federal entities, the Smithsonian and Internal Revenue.

"We don't hear very much from the Internal Revenue Service," says Ripley. "They don't come to us and ask for our advice. They stay away from us as much as we stay away from them."

The Smithsonian has seen a good deal more of the IRS recently. The IRS is relying on a PhD mineralogist to head up its nationwide crackdown on suspected tax shelter abuses. Agents have met with Smithsonian administrators and have already audited gem and mineral donors in Tennessee, Florida, New York, New Jersey, Ohio, Wisconsin, Texas and elsewhere, challenging their deductions.

Some donors are being represented by former IRS attorneys such as Alvin C. Martin, himself a donor, or the law firm of Caplin and Drysdale, headed by former IRS commissioner Mortimer Caplin.

Under the tax law, donors may deduct the fair market value of gifts. Donors say that value should be what retail stores could sell the stones for, not what donors paid for them from discounters or the mine. Independent appraisers, they say, can substantiate a dramatic appreciation in gem values in the late 1970's in addition to the high mark up in such items.

Says Desautels, "Five times from mine to retail market, that's not unusual." His advice to donors: "I would resist. They don't need to roll over and play dead because they haven't done anything illegal."

The IRS, in a 1980 revenue ruling, says "the best evidence of the fair market value is the price at which the promoter sold the gems to the taxpayer," not some artificial or abstract determination of value.

In an internal memo dated May 27, 1982, Ernest Child of the IRS' Buffalo District wrote, "On the surface the contribution/deduction appears legitimate. However, further examination indicates that these contributions are nothing more than tax savings schemes." Some gifts, he wrote, were "appraised at 5 to 15 times their value."

Says Ripley, "We always say if it's the Smithsonian and there's a problem with Internal Revenue, that's up to the donor and Internal Revenue. It's not up to us . . . . If it's something we really want, then we take it having assumed that they've the donors done all the right things."

Ripley adds a caveat: "Anything that was overtly likely to affect the character of the person or the character of the institution I think one has to be very scrupulous about trying to avoid . . . . I would think that if a curator got wind of anything that implied this kind of thing that he'd just clean his skirts right away." The Florida Donors

In 1977, Fort Lauderdale, Fla., attorney Ronald Anselmo had partnership income of $153,619 and the tax shelter his law partner Willard Dover described sounded ideal: Purchase gemstones at a discount in Brazil, hold them long enough to get capital gains treatment, then donate them and deduct them at an appraised value five times what was paid for them.

It was all part of a tax shelter package sold by R.G. Wilson and Company, a Florida firm. The company even pledged to provide appraisals at five times the purchase price of the stones.

The man who bought the stones for Wilson, Douglas S. Crucet, went to the Smithsonian to find out what gems the museum would accept.

According to Desautels, Crucet said he "could work up some donations for me . . . . We talked about specifically what kind of stones, because he was interested in supplying commercial gem stones . . . these were strictly for the Naturalist Center, for working with, as far as I was concerned--disposables."

Desautels said Crucet asked him "to write up a thing to get people excited about gemstones that he could trot around." The brochure, entitled "The Lure of Gems," identified Desautels as the Smithsonian curator and named Crucet's gem company. Desautels said he received "about $100" for writing it. (The IRS later contended in tax court papers in the Florida case that in providing such a promotional tool Desautels had "fathered this entire tax shelter abuse.")

Ronald Anselmo, his brother, Scott, and Dover--all partners in a Florida law firm--bought gemstones from the Wilson company. The two Anselmos each bought $15,000 worth, and Dover $20,000.

Dover told Martin J. Roess, a former Florida Circuit Court judge who is now chairman of Guaranty Savings and Loan Association in St. Petersburg, of the offer. Roess said he purchased about $40,000 worth of stones.

On April 28, 1977, two Tennessee appraisers submitted identical appraisals for several Wilson and Company clients, according to court records. Ronald Anselmo's $15,000 purchase was valued at exactly $80,679.70 by both appraisers. One of the appraisers, Randolph Oehmig, said he was unaware of the contract's provision to provide appraisals that were five times the gems' purchase price when he appraised the stones.

Anselmo received his purchase, 461 colored gemstones--16 aquamarines, one blue topaz, one tourmaline, and 443 oval amethysts.

On Sept. 20, 1977, Desautels wrote Wilson, "I am pleased to respond to your letter asking about our interest in receiving gifts of gems from some of your investment clients. We are always interested in receiving gem gifts . . . if some of your clients are interested we would be pleased to hear from any of them and will be glad to give encouragement to the idea."

Desautels wrote one of Wilson's clients, pledging to "do what I can to encourage and assist you in the transaction. The actual procedure is very simple. All it requires is a transfer of the gems to us accompanied by a letter indicating they are a gift. In turn you will receive a letter of acknowledgment and the transaction will be legal . . .Values, of course, are not our concern but are primarily a matter between you and the Department of Internal Revenue."

On Dec. 30, 1977, the Anselmo stones were given to the Smithsonian Institution. That same day Desautels wrote Anselmo thanking him for the gift:

"Since we have hardly any funds for gem purchases it is necessary to rely on public-spirited gifts from those who wish to support our programs." The letter, used to document the gift to the IRS, is a part of tax court records.

Ronald Anselmo deducted the gift from his 1977 and 1978 income taxes at $80,679, according to his tax returns filed in U.S. Tax Court.

He and the other three Florida donors were invited to an Oct. 6, 1978, banquet to honor the museum's major donors and induct them into the James Smithson Society.

Over a black-tie dinner of scallops and tenderloin of beef en Gelee served with Rioja Claret 1975, two of the Florida donors, Roess and Dover, and others from around the country were welcomed by Ripley, and listened to remarks offered by Chief Justice Burger.

Two years later, on Aug. 8, 1980, Ronald Anselmo received an IRS deficiency notice telling him he owed more than $32,000 in taxes for 1977 and 1978. The gems he purchased for $15,000 were worth less than $10,000, not the $80,679 he had claimed, said the IRS.

Today Anselmo is in U.S. tax court trying to save his deduction. The IRS contended it was "simply not reasonable to believe that anyone, least of all a businessman, would sell any product for one-fifth its value."

Anselmo's attorneys say what was paid for the stones is irrelevent since the law provides for a deduction based on the fair market value and the attorneys argue that should be the retail price.

Scott Anselmo, Dover, and Roess have also had their taxes audited and await the outcome of the Anselmo case. Said Roess:

"We're all in the same kettle of fish together. Here is my maiden voyage so to speak. I make what I think is a fine donation to the Smithsonian which has some tax benefits which the Congress of the United States allows, approved by legislation . . . and what I get is a great big legal bill and a whole lot of litigation.

". . . I think the legal bill is already something like $40,000. It's split three ways between Dover, Roess, and Ronald Anselmo . . . Maybe it's more than that. I sent them the lawyers $10,000 just the other day. It's probably nearer $60,000. The only good thing about it the legal fees is it's deductible."

The fortune of Robert G. Wilson, the promoter of the tax shelter, also took a turn for the worse. In 1978, another Fort Lauderdale attorney sued Wilson alleging civil fraud. The attorney said he had paid $30,000 for gemstones as part of the Wilson gem tax shelter and had been assured they were worth $150,000. He said he later learned the stones were worth about $10,000. On Jan. 17, 1980, Wilson settled out of court for an undisclosed amount.

Wilson could not be reached for comment but in court papers has denied any liability. His company records, according to court documents, are in Freeport, Bahamas.

Postscript: A small packet of aquamarines Anselmo gave to the Smithsonian was subsequently lost. Says Desautels: "Unfortunately sloppy bookkeeping, I can't chalk it up to anything else, but there were so many of them . . . . They were not serious gemstones. Therefore nobody ever considered them seriously, including myself. So a package is missing that isn't worth a hoot. I could replace that package for $250." The Blue Topaz

Carleton Davis, a Columbus, Ohio, financial planner, bought a 292-carat electric blue topaz, the size of an egg, for $11,000. He showed the topaz to Desautels. " 'Gee, I'd like to have that,' " Davis recalls Desautels saying.

A short time later, Davis sold the stone to one of his financial planning clients, Joe Mullins, for about $12,000.

"I unloaded it, made a quick buck, and got rid of it," said Davis.

Mullins said he bought the stone because it was beautiful and might be a good investment, not as a tax shelter. He remembers talking with Desautels about the stone at a gem meeting in Columbus.

". . . He said he Desautels had heard about that particular topaz and they were interested, that's all. That was long after I bought it. That's how I got the idea," said Mullins.

In December 1979, Mullins donated the stone to the Smithsonian, deducting the gift from his income taxes at $59,130--nearly five times what he had paid for it. He was presented a bronze Smithson medal and inducted into the Smithson Society on Sept. 26, 1980.

Mullins said one appraiser told him the stone was worth $65,700. But he took the lower appraisal.

Said Davis, the previous owner, "I was surprised at the appraisal . . . . I got a hold of one of the appraisers and said, 'Can you justify that?' He said, 'absolutely.' . . . I said, 'Man, if you can justify that I bought it at a real value and sold it too cheap. I had a pretty good idea what it was worth, but I had no idea it was worth that kind of cabbage."

On Jan. 22, 1982, Mullins received an IRS deficiency notice telling him he owed $15,234.09 and that the topaz was worth $10,220, not $59,130 as claimed.

Said Mullins, "Obviously if they're the IRS is going to contest anything that you give, it's not worth the trouble . . . . Institutions like that the Smithsonian are clearly going to suffer in their collection." Disallowed Reduction

Charles DeBoer of Rochester, N.Y., said he paid about $5,000 for six stones purchased from dealer Bill Larsen at a gem show in Detroit in 1977. Among the stones were a 75.1 carat cerussite and a 48.25 carat petalite.

When DeBoer donated two of those six stones to the Smithsonian in 1979, the cerussite and petalite were appraised at a total of $22,600--at least four and a half times what he paid for them. DeBoer said that's what two independent appraisers said they were worth.

The IRS has preliminarily disallowed the deduction, said DeBoer.

DeBoer, a collector of gems and minerals, said he gave the stones for two reasons. "It's partly of course because I get a tax savings. It's also because the Smithsonian is the premier institution and I am rather thrilled with the idea that I had a stone that was good enough to go to their collection. The idea that they wanted one of my stones means that my collection is in some ways better than I thought it was." Soured on Giving

In 1982 the IRS told Dean McCrillis he was being audited. He said he later learned it was because his name appeared on a list of Smithsonian donors. What bothered McCrillis was that he was just being charitable, wanting nothing in return, and hadn't even deducted the 1980 gift of minerals worth "a couple of thousand dollars" from his federal taxes.

"That's sort of like looking a gift horse in the mouth from my point of view," said McCrillis, head of a mining company in Maine. "I got ticked off. It cost me money. My accountant had to go down and spend two days with them IRS auditors ."

The experience of the audit has soured him on giving:

"I'm not going to go through that kind of thing again . . . . I'm not going to give if I'm going to have to be audited every time or somebody is going to look at me with a fisheye and try to find some problems. Why should I?

"Why did I give the stones away? Just because--goddamned it, the IRS asked my accountant the same question . . . just because I wanted to. I thought it would help them. People don't understand that." The Smithson Society

Like many museums, the Smithsonian honors major contributors, awarding them medals, inscribing their names in plaques, inviting them to exhibition openings, and inducting them into an honorary society, the James Smithson Society, named for the institution's original benefactor. Many of those so recognized--more than one in five--have been donors of gems and minerals.

Between 1977 and 1980, donors who gave more than $25,000 in cash or contributions were made lifetime members of the Smithson Society. Now it is for donors who make "extraordinary contributions."

The society is described in Smithsonian brochures as "a continuing reafffirmation of founder James Smithson's mandate for the increase and diffusion of knowledge in our increasingly interdependent world."

Desautels says of society membership: "I used that as a sales gimmick for donations for some time and the institution lived up to its promises but the annual dinners and affairs got to be larger and larger."

Says Secretary Ripley: "I don't know much about the details except that I do know I've signed a lot of letters over the years for people giving important things to this museum."

When Desautels officially stepped down as curator of the collection, his successor, associate curator John White, announced, "There would be no invitations to dinner . . . . No one was rewarded because in my opinion the Smithson Medal should be limited to those people who've given the institution's major collections, collections they've spent the better part of their lives pulling together, not things that were blatantly tax shelters."

Several disappointed donors have called the Smithsonian asking about their dinner invitations, said White.

"So if they Smithsonian administrators want a list from me of people I think are worthy of being awarded the medals, I say 'there are none in my opinion.' " Tomorrow: The King of Gems, Part IV