The Treasury Department, on behalf of the IRS, sued one of the nation's largest law firms, Dallas-based Jenkens & Gilchrist, on Thursday, demanding that the firm turn over information about clients who participated in potentially abusive tax shelters that were promoted by the law firm.

The lawsuit was filed in U.S. District Court in Chicago against the Chicago office of Jenkens & Gilchrist. According to the suit, at least 600 clients of the law firm participated in tax shelters promoted by the firm and produced what the IRS estimates as at least $2.4 billion in losses that should actually have been reported as taxable gains.

In particular, the Treasury Department is looking at one shelter known as "Son of BOSS" which allegedly provides paper losses in the millions of dollars which participants claimed on their tax returns.

Several of the firm's clients are also suing the firm, claiming the tax shelters are worthless.

The law firm has indicated it does not intend to comply with the Treasury Department's request to disclose the names of participants because of the firm's ethical responsibility to its clients. "Our clients and their rights come first," the firm said in a statement.

IRS Chief Counsel B. John Williams disagrees and believes attorney-client privileges do not extend to the sales of tax shelters by the firm. The law firm contends that it did not sell the shelters but instead offered legal advice in the form of promoting the shelters.

"Americans have a right to consult with an attorney in confidence, and only the clients themselves can waive that right," said the firm's statement.

IRS Commissioner Mark Everson said, "attorneys and accountants should be pillars of our system of voluntary compliance, not the architects of its circumvention."