The Internal Revenue Service will soon join the parade of government agencies kicking the tires of mutual funds.

In August the IRS will break new ground by methodically auditing the books of as many as 50 funds. That's a departure from the agency's usual practice of focusing only on the companies that run the funds.

The information-gathering project, as it's known around the IRS, is part of an larger effort by the agency to assess accounting and business practices in various industries. The results may lead to guidance on accounting practices or even changes in the laws and regulations that govern fund tax accounting, the agency said.

A group of 20 IRS agents from across the country will prepare for the assessment by attending a mutual- funds training session in New York on Wednesday.

The IRS emphasizes that it's not singling out the mutual fund industry for punishment. But the prospect of tax agents looking over their books already has many fund executives, including those who work for banks, feeling edgy.

Earlier this month, more than 200 fund executives, including about 20 from banks, attended an Investment Company Institute briefing in Washington to learn how to prepare for the IRS audits.

"I sensed there was a lot of fear," said Ken C. Jones, a partner from KPMG Peat Marwick's Washington office who addressed the group. But Mr. Jones, a former IRS official, reinforced the IRS' position that this project, scheduled to be completed by next March, is primarily expected to help the agency gather information.

"Whether it's an audit of Fortune 500 company or an individual over a charitable deduction, I know anticipation of an IRS audit is a very stressful thing," said C. Raymond Presley, director of the industry specialization program at the IRS, Washington.

The IRS will audit a statistical sample of mutual-fund tax returns, including those of bank-affiliated funds, for current compliance with tax laws.

Auditors will also review transactions between the funds and their advisers, according to an IRS document describing the project.

The IRS has already ruffled a few feathers on that score when looking at the management-fee waivers in a major northeastern bank's mutual fund complex.

"I helped organize some material to support expenses around mutual funds, and the examiner went away," said the general counsel for the bank's securities unit.

"It seemed to us to be a nickel item, but it caused us about $500 worth of work," the lawyer griped.

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