George Holmes Jr., the former president of a firm once hired to run the District's long-troubled Bates Street housing redevelopment project, pleaded guilty yesterday in federal court here to failing to report $122,000 of his income in 1980 from the city-financed project.

Federal prosecutors, who have investigated the housing project off and on for three years, said the conviction of Holmes was a major break in the case, because he has agreed to cooperate in a continuing grand jury investigation of suspected misuse of hundreds of thousands of dollars in federal housing funds in the project.

Holmes, a developer who now lives in Norfolk, pleaded guilty to filing a false federal income tax return, a felony, in which he failed to report salary and fees that he took out of the housing project in 1980. While Holmes was not specifically accused of diverting money from the project, sources say that some of the $122,000 he received included some federal funds that he controlled and improperly claimed as project expenses.

The grand jury is investigating two other former principals in the project, Jack W. White and Lawrence J. Brailsford, in connection with allegations that other funds may have been diverted from the project, which received $13 million in mostly federal funds from the city.

Holmes, who pleaded guilty before U.S. District Judge Oliver Gasch, could be sentenced to a maximum of three years in prison and a $5,000 fine. Holmes and his attorney, Plato Cacheris, declined to comment.

John A. Shorter, a lawyer representing White, also declined to comment. Neither Brailsford nor his attorney could be reached for comment.

The city official with primary responsibility for supervising the Bates Street project was former city housing director Robert L. Moore.

The Washington Post reported last year that Moore had thousands of dollars of remodeling work done on his home by companies that at the same time were subcontractors on the Bates Street project. Moore told The Post that he had paid for all the work.

Sources familiar with the investigation said Moore subsequently provided prosecutors with canceled checks that supported his statements that he had paid for the work.

"I think it is fair to say there is no evidence of wrongdoing with respect to" the work on Moore's house, Stephen Glickman, one of Moore's attorneys, said yesterday. "I don't believe there are any other allegations about Mr. Moore," Glickman said.

The Bates Street project, once touted as the showpiece of Mayor Marion Barry's housing program but for years beset by serious financial and construction problems, is near North Capitol Street and Florida Avenue NW.

Following reports of waste and mismanagement in the project by D.C. Auditor Otis H. Troupe and The Post, Barry conceded last year that serious mistakes had been made and that the project suffered from shoddy workmanship and poor financial controls.

In a statement yesterday, Barry declared that Bates Street was a "major success" and said that Holmes' plea "should in no way be tied to the project's success or failure."

"The Bates Street project was difficult to accomplish but . . . I am proud of the results," Barry said. "It is providing decent, affordable housing to many families who did not have access to comparable housing elsewhere."

Bates Street is the largest and most expensive redevelopment project undertaken by the D.C. government. It was an attempt to create a 163-unit model community for residents of all income levels out of what had once been the city's worst slum. Today, seven years after the project was begun, a portion remains unfinished, and some residents say the city has not financed repairs for which it is responsible.

U.S. Attorney Joseph E. diGenova said yesterday that the plea by Holmes "represents the beginning of the culmination of a three-year investigation into corruption in the Bates Street housing project." He said that charges are likely to be brought against others.

Sources said the federal investigation was hampered by the developers' poor record keeping, which was described by one source as "total chaos." Investigators also had difficulty because the developers had mingled federal, city and private funds in a complex network of bank accounts and various corporate and partnership entities involved in the project, according to the sources.

The FBI opened the investigation of the project in 1982, but prosecutors did not begin presenting evidence to the grand jury until March 1984. Because of the delay, the five-year time limit for filing federal charges had expired for some aspects of the case.

Prosecutors then called in the Internal Revenue Service to assist the FBI and, as a result of their joint probe, decided to concentrate on possible tax violations.

Sources said that some of the funds Holmes failed to report as income were federal funds but that the bulk came from private sources. Assistant U.S. Attorney Brian Murtagh said in court yesterday that Holmes did not report any of the $122,125 he received from the Bates Street project on his 1980 federal income tax return.

Murtagh said that most of the funds Holmes received came from Bates Street Associates Inc., one of the firms involved in the project, which Holmes headed. The rest came from BSA Limited Partnership, another entity involved in the project, and from Holmes and White Associates Inc., a corporation begun by Holmes and White.

Holmes filed a tax return reporting an income of $16,700 and claimed he was entitled to a refund of $14,460, according to Murtagh. In fact, Holmes owes the government $60,527 in taxes on the money he failed to report, Murtagh said.

Cacheris, representing Holmes, said in court that Holmes' plea resulted from an agreement worked out with prosecutors. As part of that arrangement, Holmes waived indictment and prosecutors filed a sealed charge, known as an information, against him.

According to the agreement, dated May 22 but filed in court this week, Holmes could have been prosecuted for the more serious offense of income tax evasion in connection with the grand jury's investigation into the disbursement of federal housing funds used in the project.

Holmes has agreed to cooperate fully with prosecutors and to testify before the grand jury and in any other court proceedings, according to the document. Under the agreement, if Holmes fails to cooperate fully or gives false testimony, the government can charge him with other offenses related to the project.

The continuing investigation involves the possible diversion of a substantial amount of federal community development block grant funds, particularly relating to more than $4 million in interest-free loans that the city made to the financially struggling development team, sources said. In his 1982 report on Bates Street, auditor Troupe focused on the interest-free loans and said the city had not required the development team to document adequately how the monies were spent. Troupe said the city never fully accounted for the $4 million in loans.

Troupe criticized the D.C. Department of Housing and Community Development, which was in charge of monitoring the disbursement of funds and other aspects of the project, for not properly supervising the project and for continuing to pump money into it even after the developers experienced difficulties in managing the project.