Washington ? One of the largest accounting firms promoted dubious charitable deductions and complicated transactions to generate phony paper losses for clients, say Senate investigators who spent a year unwinding four tax products that KPMG sold to more than 350 individuals in the late 1990s and early 2000s.

The firm says it no longer offers the tax strategies.

The four shelters once sold by KPMG will be scrutinized this week during two days of hearings of the Senate Governmental Affairs investigations subcommittee.

Tuesday’s testimony is to give an inside look at tax-shelter development and marketing. Thursday’s aims to reveal roles played by other financial institutions that support and enable tax sheltering.

Subcommittee aides, who handled the project with the help of anonymous whistle-blowers inside KPMG, said the transactions had virtually no business purpose other than to reduce taxes for people who used them.

The Internal Revenue Service ruled in 2000 that the basis for three of the four transactions make them potentially abusive shelters. The fourth, subcommittee aides said, is under investigation by the IRS.

In a written statement, KPMG said the strategies “represent an earlier time at KPMG and a far different regulatory and marketplace environment. None of the strategies — nor anything like these tax strategies — is currently being offered by KPMG.

“Today, KPMG only offers our clients tax services that are tailor-made to address their distinct business objectives and tax-planning needs,” the statement said.

Treasury Department officials have indicated that the market for tax shelters appears to be shrinking. But Sen. Carl Levin of Michigan, the top Democrat on the investigative subcommittee, disagreed. “I don’t think we have any evidence that it’s slowed down at all,” he said.

Levin said case studies assembled by his subcommittee staff show that accounting firms marketed and developed potentially abusive shelters with the willing participation of banks, investment firms and lawyers. One shelter required cooperation from tax-exempt state and municipal pension funds.

He said the penalties must be dramatically increased for anyone who abets illegal tax sheltering. At first blush, he said, the promoters should face penalties equivalent to the taxpayers, who lose the tax benefit and pay penalties on top. Promoters currently are fined $1,000.

“That’s ridiculous. The fees that are paid here are huge,” Levin said.

“These folks are not deterred by $1,000 fines.”

One transaction investigated by the subcommittee, known as Bond Linked Issue Premium Structure, generated a loss for taxpayers who typically had $20 million or more in capital gains or ordinary income.

The structure generated a complex web of loans and investments that appeared to lead to establishment of a strategic fund for currency investments.

Subcommittee aides said the real purpose was to secure a loan that, when eventually paid back, would generate a loss for the taxpayer equal to the income that would have been sheltered. Two other transactions used similar strategies.

KPMG said all four strategies were discontinued between 1998 and 2001.