Federal investigators looking into whether Oracle improperly wrote off nearly a quarter-of-a-billion dollars in losses in 2003 in order to obtain a massive tax refund are basing their case in part on a revealing letter from a bank involved in the matter, InformationWeek has learned.

The letter, authored by officials at the Bank of North Georgia, appears to confirm Internal Revenue Service suspicions that stock sales to which Oracle attributed the huge loss never actually occurred.

The bank officials say Oracle never planned to sell stocks in three Oracle-controlled companies to a subsidiary of a business partner, as it maintained, but merely wanted to transfer to the subsidiary promissory notes representing a future claim on the companies. "The only assets owned by the subsidiaries will be notes receivable from Oracle," said the letter from the bank, which helped fund the deal.

Portions of the letter were obtained Tuesday by InformationWeek.

While the difference between an exchange of promissory notes and an actual stock sale may sound like the sort of nuance best left to accountants to wrangle over, the IRS says the bottom line is that promissory notes do not qualify for the tax write offs claimed by Oracle -- even if they're sold below face value.

As first reported Monday, the IRS in an ongoing investigation is challenging Oracle's claim that it lost $223,651,021 on the stock transactions in 2003 -- and the $78 million tax refund that Oracle received as a result of the purported loss. At the very least, Oracle could be forced to pay back the refund to the government and some of its previous years' earnings statements could be impacted if the IRS proves its case.

The Bank of North Georgia said it loaned funds to the subsidiary, established by Oracle tax advisors Barnwell & Company LLC of Atlanta, so it could purchase the notes from Oracle. Oracle sold the instruments to the subsidiary at a 24% discount to face value, allowing Oracle to claim the huge capital loss on its 2003 tax return, according to an IRS document obtained by InformationWeek.

The Bank of North Georgia letter also appears to bolster the IRS's contention that the sales had no other purpose than to create a significant tax gain for Oracle. "A new entity (LLC) will be formed by Barnwell and partners to purchase several subsidiaries of Oracle from them in an equity transaction to effect the tax benefit for Oracle," the letter states.

The instruments that Oracle sold to the Barnwell & Company subsidiary gave the latter a stake in three companies that Oracle had previously acquired -- Treasury Service Corp., Concentra Software Corp., and DataLogix International. Oracle bought out DataLogix in 1996 for $94 million to bolster its presence in the market for software used in manufacturing.

Oracle officials have not responded to repeated calls requesting a comment on the case.