The Internal Revenue Service is seeking $21.7 million from Waddell & Reed Financial chief executive Keith Tucker, who allegedly used an abusive tax shelter to claim $39.2 million in deductions, the Kansas City Star reported.

The IRS rejected the deductions contained in the 2000 federal tax return, saying the companies that generated the losses lacked “economic substance for federal income tax purposes.” Tucker and his wife are fighting the IRS in U.S. Tax Court in Washington, D.C.

The dispute centers on a series of transactions involving millions of dollars' worth of foreign currency options and an Irish private company that the Tuckers owned through a corporation called Sligo (2000) Co. Inc. The couple claimed that they lost $39.2 million because of the options trading involving Sligo.

The IRS, however, said in court documents that Sligo and the Irish corporation Epsolon Ltd. were “shams.” The agency said that Epsolon's “principal purpose” was to reduce the Tuckers' tax liability.

Kansas City tax experts quoted in the newspaper said the Tuckers would have the burden of proving the transactions were legitimate.

“They need to show that this was not only a real transaction, but one that had economic substance,” said William Prugh, a tax lawyer at Shughart Thomson & Kilroy. “On the face of it, that will be a difficult task because it appears there was no risk to the taxpayer in the transaction, based solely on what they've described in the petition.”

Court documents do not say who gave the Tuckers tax advice in 2000, but Tucker had previously gone to court to bar KPMG from identifying him to the IRS. Court papers from that earlier lawsuit, which was unsuccessful, say that KPMG sold Tucker a tax shelter in 2000. In ruling against Tucker, the court said that the IRS had already called the KPMG tax shelter “potentially abusive” before Tucker took part.

KPMG also serves as Waddell & Reed's auditor.

The IRS and the Justice Department have been cracking down on questionable tax shelters, and unhappy tax-shelter clients have also brought lawsuits against KPMG and other firms.