Feb. 24 (Bloomberg) -- Forty percent of Fortune 500 companies and more than 10,000 individuals used tax shelters that deprived the U.S. government of about $129 billion in revenue from 1998 to 2003, according to a congressional study released today.

The Government Accountability Office said 207 companies in the Fortune 500 bought tax shelters from accounting firms or obtained them from their auditor. The agency, Congress's investigative arm, concluded that 10,300 individuals also used shelters, most purchased from accounting firms. The report doesn't identify the companies or people being targeted and makes no recommendations for curbing the use of shelters.

Michigan Senator Carl Levin, the senior Democrat on the Senate Permanent Subcommittee on Investigations who ordered the probe, said the GAO's findings ratify recommendations by the Public Company Accounting Oversight Board that new rules be enacted to limit the ability of accounting firms to promote shelters that serve no other purpose than to avoid taxes.

``Today's GAO report provides further evidence of accounting firm involvement in tax shelters and why the new rules are needed,'' Levin said in a statement. ``If we are going to restore public confidence in the financial statements of our public companies, auditors of those companies can't be selling them abusive tax shelters that distort and misrepresent the companies' tax liabilities and income.''

`Data Limitations'

The study said the IRS couldn't identify the promoters of about a quarter of the shelters and as a result the number of suspect transactions may be higher than reported. Other companies may not have fully disclosed the extent of their involvement in certain tax shelters because there were no penalties for failing to do so until last year, the GAO said.

The study said its estimates were imprecise because some of the shelters may not be abusive and some transactions may have been counted more than once. In addition, the study only includes transactions known to the IRS.

``Despite these data limitations, the numbers we present in this report provide a general indication of the extent to which Fortune 500 companies did use their external auditor for tax shelter services,'' the report says.

In a written response included with the report, IRS Commissioner Mark W. Everson said the agency is creating a new database to more accurately determine the extent of abusive transactions. New laws requiring additional disclosure by companies that use tax avoidance transactions also will help the agency crack down, he said.

To contact the reporter on this story: Ryan J. Donmoyer in Washington at rdonmoyer@bloomberg.net

Last Updated: February 24, 2005 16:03 EST