(MONEY Magazine) – After G.O.P. presidential aspirant Steve Forbes checked out the tax returns for 1966 through 1994 released by rival Robert Dole and his wife Elizabeth in January, he quipped that all the Doles' returns proved was that "after 30 years on the public payroll he is a millionaire." Nice sound bite. But the multimillionaire head of Forbes magazine (who, by the way, has so far refused to release his own returns) missed the story. A MONEY analysis of the Doles' joint returns shows that their use--and in one case, abuse--of loopholes has enabled them to avoid some $300,000 in federal taxes to date. Perhaps even more galling, they waltzed through the loopholes at a time when Dole was forcefully urging Congress to plug them.

MONEY's investigation included a careful analysis of the Doles' returns by our tax editor, Mary Sprouse, who as a former IRS audit group manager reviewed scores of tax shelters in the mid-'70s. She found that Elizabeth "Liddy" Dole invested in several of them in the late '70s through the mid-'80s. Most notably, in 1983, when Dole was chairman of the powerful Senate Finance Committee, Elizabeth invested in a limited partnership that was designed to enable its investors to slash their tax bills substantially.

Altogether, according to calculations performed for MONEY by the Washington, D.C. office of BDO Seidman, a national accounting firm, Elizabeth's two biggest partnerships chopped the couple's taxes by $298,802 between 1983 and 1994. It's also worth noting that the tax savings started rolling in only a year after the senator attacked tax shelters at the annual spring meeting of the American Bar Association's tax group in Washington, D.C. Said Dole: "Working men and women increasingly see an inequity in the availability of sophisticated tax shelters to the wealthy.When the proliferation of special tax privileges undermines confidence in the system, it is time for a change." The change he called for didn't come until 1986, when radical tax reform legislation that clamped down on most shelters swept through Congress. Without that legislation, the Doles' partnerships would have saved the couple more than twice as much ($677,000) on their taxes.

Elizabeth's most questionable move was her 1983 investment in Altenn Associates. It was "a pure shelter deal," admits Elizabeth's former financial adviser and Bob's longtime political fund raiser David Owen, who later did time in a federal prison for filing false tax returns unrelated to the Doles. Altenn raised $4 million from investors, borrowed another $10 million, and bought four properties: an office building in Memphis and three supermarkets in Chattanooga and Paris, Tenn. and Florence, Ala. The partnership then leased the properties to Kroger Co., the national grocery chain.

Elizabeth bought about 4% of the shelter for $174,609, of which $156,780 was a nonrecourse loan from the partnership. The nonrecourse wrinkle meant she could write off the interest paid on the loan, but if the partnership went bust, she couldn't lose more than she'd invested. In addition, she and her fellow partners wrote off additional interest on debt incurred by the partnership as well as depreciation and expenses.

For partners in the Doles' 50% tax bracket, the partnership plan forecasted tax savings of $383,224 before Altenn was projected to turn a profit in 1997. In fact, by 1986 Altenn had already generated $423,004 in losses for the Doles, saving them a total of $211,503 in taxes, according to BDO Seidman. In addition, since 1987, the year the new tax law started phasing in, the Doles' returns state that they have accumulated $342,623 in unused losses from Altenn.

The Altenn deal was clearly abusive by IRS standards. A 1983 IRS publication, for example, describes an abusive shelter as a scheme that has "little or no economic reality." According to the IRS, obvious tip-offs included the use of nonrecourse loans, taking deductions in years when the partnership doesn't produce income, and projected tax losses, deductions and credits that far exceed the cash the partners put up. Altenn displayed all of these red flags. Says Don Alexander, a former IRS commissioner appointed by President Nixon in 1973: "When more than 50% of the return is from tax savings, a shelter may be abusive. In this kind of deal, the investment is secondary and tax reduction is primary." However, Robert Davis, Elizabeth's lawyer, denies that Altenn Associates was abusive. Davis says: "It was one of the investments made by David Owen, who concluded that like investors in the early '80s, Mrs. Dole could and should take advantage of whatever tax relief she could."

Elizabeth's two other real estate partnerships also generated big tax savings. In 1978 she and her brother John Hanford formed a partnership called J&E (for John and Elizabeth) Realty that generated $55,841 in losses for the Doles. And in 1986, Elizabeth's blind trust invested $1.35 million in College Park Two, an office building in Overland Park, Kans. Over the years, that deal racked up an estimated $500,000 in losses.

The Doles' 1994 return shows a joint income of $492,606 and $674,671 in unused losses from both Altenn and College Park. That means they could shave another $267,170 off their future tax bills, assuming a top 39.6% tax rate, when and if they sell their interests or the partnerships dissolve. For a politician who says he hates deficits, Bob Dole has sure done his share to contribute to them.

--Ann Reilly Dowd and Mary L. Sprouse