NEW HAVEN, Conn. - A partnership that includes Nobel Prize-winning economists is not eligible for $106 million in tax deductions it claimed from a tax shelter, a federal judge ruled Friday in a case that has been closely watched by financiers for more than a year.

U.S. District Judge Janet Bond Arterton also ruled that the U.S. Internal Revenue Service may fine Long-Term Capital Management LP about 40 percent of the improperly claimed tax benefit.

Lawyers for Long-Term Capital could not be reached for comment. One lawyer who was reached, Charles Pieterse, refused to comment.

Charles Hurley, who helped the U.S. Justice Department try the case, said the decision was thoughtful and could affect other cases.

"This was a very good win for the government and I think it will play a significant role in their enforcement efforts relating to listed transactions," Hurley said.

The leadership of Long-Term Capital, the now-defunct hedge fund based in Greenwich, included Nobel laureates Myron E. Scholes and Robert C. Merton and bond trader John Meriwether. The company collapsed in 1998, requiring a Wall Street bailout.

The judge found that Long-Term had improperly tried to claim capital losses in 1997 from a complex set of sale-leasebacks and lease-stripping transactions. The $106 million worth of losses amounted to about $40 million in tax savings for the company's partners. The exact amount, based on each partner's tax situation, was not disclosed.

The IRS had denied the $106 million in losses because it said the transactions that led to the losses had no legitimate business purpose or economic substance, other than to get big tax benefits.

"We had some of the most sophisticated investors in the world, and people who are uniquely qualified to evaluate the economic substance of a transaction, who participate in a transaction that clearly lacked substance," Hurley said.

The companies sued to get the deductions.

Long-Term claimed it received substantial fees from the deals, but lawyers for the U.S. Justice Department argued that the fees were paltry compared to the tax breaks associated with the deals.

The company also claimed that it relied on advice from law firms to claim the deductions. Justice Department lawyers argued that the law firms stood to also gain from the transactions.

The tax shelter was created by Babcock & Brown, an investment firm in San Francisco.

Lawyers for the government claimed the transactions were set up in such a complex way that it was nearly impossible for IRS agents to track how the deals happened and whether they were legitimate.

All the transactions happened with a British company, Onslow Trading and Commercial LLC, that the IRS claimed was set up specifically to handle these deals. Since the company is not subject to American tax laws, it would transfer the tax benefits to Long-Term Capital.

The lease-stripping transactions concerned computer equipment leased and subleased from General Electric Capital Computer Leasing. The subleasers prepaid Onslow Trading for the computer equipment, and Onslow Trading in turn used the lease positions to get stock in American companies before the rent came due.

The sale-leaseback transactions concerned trucks that Wal-Mart sold to banks, which then leased the trucks to Onslow Trading. Wal-Mart leased the trucks back from Onslow using prepaid leases. Onslow also took these lease positions to get stocks before the rent came due.

In both cases, Onslow got about $1 worth of stock for every $100 worth of lease prepayments. The total amount was $4 million worth of stock, which the company claimed was worth $400 million.

Government lawyers claimed Onslow Trading never had control of the money, so the deals were not legitimate.

Onslow Trading gave the stock to Long-Term Capital in exchange for a purported partnership interest in the company. Onslow Trading then sold the partnership interest back to Long-Term Capital.

Finally, Long-Term sold the stock it got from Onslow to rack up a loss to claim for taxes.