NORDSTROM AND ITS lobbying group, the National Retail Federation (NRF), are at war with the IRS. The issue is simple--the IRS wants more money from retailers like Nordstrom, and the retailers don't want to pay up. So Nordstrom is doing what most businesses do: lobby the politicians.

The IRS is reviewing two sections in the tax code that Nordstrom currently uses to avoid paying taxes. Traditionally, developers have enticed retailers with cash incentives to start new stores. These cash incentives, or "an amount we don't comment on," says Nordstrom spokesperson Brooke White, aren't taxable. If the IRS changes the tax code, Nordstrom would have to pay taxes on the developers' gifts.

To prevent the change, Nordstrom and the NRF have spent close to $2 million since 1998 to influence members of Congress who oversee the IRS, according to the Center for Responsive Politics. With their big lobbying budgets, Nordstrom and the NRF want to make sure the IRS doesn't rock the boat. "It's the way it's been for 30 years, and we want to keep it that way," says White.

With the lobbying, Nordstrom and the NRF hope to affect the outcome of the IRS' review of two specific sections in the tax code--110 and 118. Section 110, as it currently stands, lets developers give retailers non-taxable donations, like rent reductions or bulk sums, to help the retailer move into a new location. For example, if a developing company like Pine Street Development wanted to start a new mall, they might ask Nordstrom to open a store there. To sweeten the deal, Pine Street Development might give Nordstrom $5 million to help pay for building costs. This is called a "tenant allowance." The other tax shelter is section 118, which allows a developer to give Nordstrom a lump sum of cash as an incentive to start a store. This is called "contributions to capital."

Not only is Nordstrom and the NRF trying to prevent the IRS from nixing the tax loophole, they are also trying to add provisions to 110 so the section is easier to exploit. Thanks to this loophole, only retailers who have leases shorter than 15 years are protected from being taxed. Nordstrom and the NRF want the lease limit thrown out of the bill, but so far, all legislative attempts to add to the existing tax code have failed.