Police are investigating suspicions that tax clerks violated regulations and committed irregularities in the income tax assessments of businessmen Arcadi Gaydamak and Lev Leviev and convicted crime kingpin Ze'ev Rosenstein. The clerks are suspected of offering deals that included tax benefits.

The allegations say the agreements were formulated by Yehoshua (Shuki) Vita, recently appointed director of the State Revenues Administration, while he served as Dan Region tax assessor in 2004.

Vita is suspected of fraud, breach of trust and abusing authority. The official appointed as Vita's replacement is also under investigation.

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The probe is not expected to develop sufficiently to justify a trial, as police do not suspect the clerks to have received contributions from the businessmen, and given the fact that clerks are given wide leeway in making decisions.

The Civil Service Commission announced at the end of last week that it had begun the process of suspending Vita from his post.

Attorney General Menachem Mazuz had previously prevented Vita from taking the post of revenues director, after Hirchson's surprise announcement of the appointment in January.

The International Crimes Investigation unit of the Israel Police is conducting the investigation.

In the past, Vita had been questioned as a witness, though not as a suspect, in the continuing corruption investigations in the Tax Authority, which is being conducted by a different police unit, the National Fraud Invesitgation Unit.

Mazuz prevented Vita's appointment to the revenues job as a result of the investigations, and Vita - who was unaware of the investigation against him - petitioned the Labor Court against the delay in the appointment.

In light of the suit, the State Prosecutor's Office decided to inform the Labor Court of the investigation on Thursday.

Vita's appointment as revenues director was pushed by Hirchson and Prime Minister Ehud Olmert. Vita has always been considered close to government leaders, but his advancement was halted in 1997 after he poured a glass of water on the Tax Authority's internal auditor at the time, Yael Shavit.

As a result of the incident, then-attorney general Elyakim Rubinstein, decided that Vita could no longer be promoted.

In 2004 Mazuz, Rubinstein's replacement, ruled that due to the long period of time that had passed since the incident, it was possible to promote Vita to senior positions. He was then promoted by then Tax Commissioner Eitan Rub from regional assessor to his present senior post.

Vita also competed against Jacky Matza at the end of 2005 for the post of the head of the Tax Authority, a contest Matza won. Relations between Vita and Matza over the last year are believed to have been poor.

"All of the suspicions against me are the products of libel, the result of a long, dirty relationship with a man who competed against me for the position of Tax Authority director," Vita said at a hearing at Tel Aviv Regional Labor Court, in reference to Matza.

Judges Ariela Giltzer-Katz formulated a compromise between the two sides by which Vita will be appointed to the position, but will immediately go on leave.

Vita agreed to the agreement, but the state declined. Giltzer-Katz said she would decide on the matter in the coming days.

The secret investigation against Vita and other tax clerks was launched last January, after Mazuz and State Prosecutor Eran Shendar informed police of the probe.

Oded Gazit, a lawyer for Vita, said: "Vita has worked in the tax authority for 20 years... Only a month ago, Vita was appointed by the Cabinet with the approval of the senior legal authorities to the post of State Revenues Director."

"Vita has faith in the police investigators and will be happy to cooperate as needed in order to do his part to end the investigation," Gazit said.