A Cute Number For the Taxman

Nancy Reagan struggled in her memoirs to explain why some people had objected to her "borrowing" designer dresses while she was First Lady. "One reason may be that some women aren't all that crazy about a woman who wears a size 4, and who seems to have no trouble staying slim," Mrs. Reagan wrote. The IRS has a more plausible explanation that has nothing to do with weight envy: the clothes and jewelry -- over $1 million worth -- may be considered taxable income.

As part of its required audit of the Reagans' taxes during their White House years, the IRS's Los Angeles field office is considering information provided by M. Chris Blazakis, former executive vice president for James Galanos, one of the designers who provided Mrs. Reagan dresses on a need-to-wear basis. Under the tax laws, a celebrity receives income for high-visibility use of a product in an amount equal to the value of that product. The defense that some of the dresses were loans, not gifts, or that they are no longer worth very much once they have been worn, may not impress the IRS. A gown, even one that doesn't suffer soup stains, may depreciate from a $20,000 price tag to off- the-rack in a single evening. But that is the point of haute couture. Its value derives mainly from its once-in-a-lifetime wearing. Los Angeles designer David Hayes, from whom Mrs. Reagan borrowed more than 60 outfits, says of those she returned, "Once something is worn," its value is "nothing."

Questions about the First Lady's practice initially came up in 1982, and she responded by promising not to accept any more free outfits. But when TIME reported in 1988 that Mrs. Reagan had continued to borrow dresses for six more ! years, press secretary Elaine Crispen explained that she "set her own little rule, and she broke her own little rule."

The expensive question for the Reagans now is whether she broke any of the IRS's little rules. Tax agents have looked at thousands of official White House photos to find out what the First Lady wore and when she wore it.