By Mary H.J. Farrell Sue Carswell Katy Kelly Eleanor Hoover
January 08, 1990 12:00 PM

Their own tastes run to plain dark suits, and they probably can’t tell a Geoffrey Beene from an L.L. Bean, but a team of Internal Revenue Service tax agents labors deep in the National Archives, poring over thousands of photographs, examining every button and bow on Nancy Reagan’s White House wardrobe. Just how many designer dresses did she “borrow” during her eight-year tenure? When the IRS finds out, it just might slap the former first couple with some hefty fines.

That would suit M. Chris Blazakis. A former fashion executive who has spent the past two years investigating Nancy’s dress-capades for a book he is writing on improprieties in the Reagan Administration, Blazakis, 36, went to the IRS in January 1989. “They missed this for eight years,” says Blazakis, who has provided the IRS with detailed information about Nancy’s clothing and accessories. If the IRS decides the finery—valued at well in excess of a million dollars—is taxable, it could really put Nancy in the red. In addition, the designers who supplied her with the dresses—including Galanos, Adolfo and Bill Blass—may be implicated in the IRS mess.

According to federal tax laws, items of value received by the Reagans were taxable if the donor intended to benefit financially. “People in the fashion industry are very aware of the value of having someone of high visibility wear their designs,” says Blazakis. “As First Lady, Mrs. Reagan was among the most visible women in the nation.”

Although Nancy was widely criticized for her designer freebies during her White House years, this is the first time the IRS has become involved. When she was criticized for her dress “borrowing” habit in 1982 and warned by the White House counsel, she swore she would stop. But six years later she was still donning the designer duds and failing to list them on the Reagans’ financial-disclosure report. “I honestly never expected that [borrowing designer clothes] would be seen as a problem,” she writes in her autobiography, My Turn. “None of the clothes were given to me to keep.”

No matter, says Blazakis, who was executive vice president for Galanos Originals, one of Nancy’s favorite designers, from 1982 to 1985. The dresses were of little value to anyone else. “We’re talking about couture,” he says. “These things were made specifically for her. She’s a size 4, and her proportions are peculiar.”

Although Nancy insisted that the dresses were “borrowed,” a former assistant says that she kept most of them until October 1988, when TIME magazine revealed that she had broken her public promise to stop the practice. After TIME tattled, the assistant says, Nancy began having her staff return the dresses on the sly.

In My Turn, Nancy, the only First Lady in recent history to take advantage of such largess, argues that wearing the clothes she accepted from American designers was good for the fashion industry. “That’s not a legal defense, that’s a public-relations defense,” says Stanley Brand, a former congressional counsel who helped write the 1978 Ethics in Government Act. “You are dealing with elected officials who are controlled by a series of laws and rules that bar or limit the kinds of things they can receive from outsiders.”

The designer clothing may be only part of the story. According to Reagan White House sources, the services of Nancy’s hairdresser, Julius Bengtsson, were provided free during her tenure through a special arrangement with Clairol—which made the hair color she used—and cost the company more than $100,000. Exercise equipment valued at $4,000 or more was installed in the Reagan’s private quarters free of charge in 1980 and returned in 1988, according to White House sources.

“It amazes me that it has taken a year for this to surface,” says Brand of the IRS investigation. “This stuff rolled off [Reagan] while he was in office. Now people are saying, ‘Wait a minute.’ ”

The taxmen might still be looking the other way if Blazakis hadn’t written to then IRS commissioner Lawrence Gibbs. While he worked for Galanos, Blazakis says the designer supplied the First Lady with clothing ranging in cost from $5,000 to $45,000. It wasn’t until after Blazakis left Galanos to start his own marketing and consulting firm, with his former boss as a client, that his curiosity was piqued. “I didn’t understand the details until I left. And then I realized it wasn’t just a personal and private thing. I took it upon myself to investigate.”

The IRS can’t reaudit all the Reagans’ tax returns from their White House years. There is a three-year statute of limitations on civil cases and a six-year limit on fraud cases. But in addition to being liable for back taxes, the Reagans could be hit with penalty charges and, if it is proved they knowingly defrauded the government, possible criminal charges.

Still, it may take more than a tax bill to convince Nancy that she did the wrong thing. “I wonder: What would have happened if I had stopped borrowing dresses and had started wearing only the clothes I could afford to buy?” she asks in My Turn. “Instead of calling me extravagant, the press would have started referring to me as ‘dowdy’ and ‘frumpy.’ ” And then what would Raisa Gorbachev have said?

—Mary H.J. Farrell, Sue Carswell in New York, Katy Kelly in Washington and Eleanor Hoover in Los Angeles