Mrs. Clinton’s Tax Deductions Disclosed : Whitewater: She used losses in money-losing real estate venture to cut commodity trading liability, McDougal’s documents show.

First Lady Hillary Rodham Clinton took tax deductions from the money-losing Whitewater real estate venture to reduce her personal tax liability on the extraordinary profits she earned from commodities trading in the late 1970s, James B. McDougal, the Clintons’ partner in Whitewater, said Tuesday.

Mrs. Clinton prepaid interest on Whitewater debt to reduce her tax liability on the nearly $100,000 that she had earned by trading in commodities, McDougal said.

Other sources familiar with the Clintons’ taxes confirmed Tuesday that the Clintons made some accelerated interest payments on Whitewater debt but the sources said that the Clintons did so only on McDougal’s instructions.

McDougal’s assertions and supporting documents released by him Tuesday offered the first evidence of a connection between Mrs. Clinton’s commodity trading and the Clintons’ investments in the Whitewater real estate venture.

The statements also marked the first time anyone involved in the Whitewater development has suggested that the Clintons used the venture to reduce their tax liabilities. Until now, Whitewater had been portrayed by the couple as simply an attempt to operate a profit-making business that went sour.

Tax experts question whether the Clintons properly claimed tax deductions for loan payments made on behalf of Whitewater. Mark S. Rogers, a Little Rock accountant hired by The Times to analyze the tax documents, said he would have advised the Clintons that the Whitewater corporation should take the tax deduction for all payments made on its behalf.

“It would have been more prudent to deposit the money into the Whitewater account and let Whitewater make the payment,” he said.

McDougal made his statements as he released more than 2,000 pages of financial records from the Whitewater Development Corp., which the White House earlier had refused to make public. He charged news organizations $1,000 for a complete set of the records and said that he also has sent copies to Whitewater special counsel Robert B. Fiske Jr.

The corporate tax records show that the Whitewater corporation consistently lost money and never paid any corporate income taxes. By the early 1980s, in fact, Whitewater had more than $100,000 in cumulative tax losses that could be used to shelter future company earnings. Records show that McDougal attempted to turn Whitewater into a tax shelter for income from other real estate projects beginning in the mid-1980s.

The Whitewater records do not substantiate the Clintons’ claim that they invested approximately $46,000 in the venture by paying interest on Whitewater loans. But they do show that Mrs. Clinton made an interest payment of $10,130.58 to a holding company owned by McDougal in 1978--the same year she reported a big windfall from her commodities trading.

McDougal said that Mrs. Clinton prepaid the interest on a Whitewater loan at his recommendation, after she asked him how she might use the real estate venture to reduce the tax consequences of her successful commodities trades.

“The only suggestion I had was, since we had accrued interest which we had not paid, (that she should) go ahead and pay it (ahead of schedule), McDougal said. The early payment allowed Mrs. Clinton to deduct it from her taxes during the year in which she reported a profit from her commodities trades.

“You could say that legal and ordinary expenses in connection with Whitewater which were deductible had the effect of reducing her tax liability.”

A White House source said, however, “there was no thought of sheltering income in Whitewater. He said that, although the Clintons made some accelerated interest payments, they “paid the interest McDougal asked them to pay.”

Another White House source noted that they “paid short-term capital gains at the highest possible rate” on their income from commodities trading.

When the Clintons were questioned about their Whitewater investment during the 1992 election campaign, they issued a report by Denver attorney James M. Lyons stating that they had put $68,900 of their own money into the venture--all of it in interest payments on loans owed by Whitewater. But more recently, the White House revised the Lyons report to say that the Clintons paid only $46,635.75 into the company.

The Whitewater tax records made available to reporters by McDougal show only two payments to the company by the Clintons--Mrs. Clinton’s payment of $10,130 to McDougal, which was listed as a loan, and another loan of $2,900 in 1979 from Bill Clinton, of which $500 was later deemed to be for the purchase of his Whitewater stock.

These entries appear to support McDougal’s contention that the Clintons put no more than $13,000 into Whitewater.

The Clintons took a deduction for the $10,130 payment on their 1978 personal income taxes. Nowhere do the corporate records reflect the receipt of a $9,000 interest deduction which the Clintons took on their personal income taxes in 1980.

The Whitewater records also show that the company received loans from several other McDougal business entities, including subsidiaries of McDougal’s Madison Guarantee Savings & Loan. Federal investigators believe as much as $100,000 of Madison money was funneled into Whitewater.

In the corporate tax year ending May 31, 1985, Whitewater reported unexplained income of $21,720. In the same year, it reported paying out $28,000 in “professional fees” to an unidentified recipient.

In the year ending May 31, 1982, it reported paying $20,264 to an unnamed shareholder. The Clintons and the McDougals were the only stockholders in Whitewater.

The tax returns also show that in 1980, McDougal transferred his half ownership of Whitewater to another corporation that he owned, Great Southern Land Co. Attachments to Whitewater’s tax returns show that Whitewater was jointly owned by Great Southern and Hillary Rodham.

Even if Whitewater began in the late 1970s as a simple money-making venture, it clearly became a vehicle for sheltering other income from taxes, records show. By the early 1980s, Whitewater had more than $100,000 in tax losses that could be used to avoid taxes on future income. By 1986 McDougal was transferring what he hoped would be profitable land projects into Whitewater to take advantage of the corporation’s tax losses, his attorney, Sam Heuer, said.

In many instances the Whitewater tax records released by McDougal are missing so much supporting documentation that it is difficult to analyze all of the actions of its owners. McDougal has refused to release Great Southern’s corporate records.