Investors may be exposed to Tax Office action because many of the collapsed schemes can no longer carry out their businesses in the way that attracted the favourable tax treatment in the first place.

The potential tax blow would represent a triple whammy for investors in the failed managed investment schemes.

First, the 18,000 investors in Timbercorp who paid $1 billion and the 43,000 investors in Great Southern who paid $1.8 billion face the prospect of losing almost all their investments in the two managers, which collapsed in April and May.

Second, to enhance the tax-effective nature of the schemes, many investors borrowed heavily to invest in them, with revelations investors need to pay out $615 million in loans for Great Southern alone.

Third, the Tax Office may rule that deductions made under the schemes are void because they are no longer operating within the product ruling they gained for favourable tax treatment.

The general manager of policy and research at CPA Australia, Paul Drum, said deductibility for investors in 2007-08 schemes would be questionable because the schemes may not have fulfilled the measures outlined in the product disclosure statements.

The schemes only attract favourable tax treatment on the basis of what their prospectuses said the businesses would do.

The ATO says in its guidance on product rulings that investors should "take appropriate action to ensure that the scheme is carried out in accordance with the product ruling".

But in the case of a collapse, the business of growing trees necessarily departs from the prospectuses.

At Timbercorp, investors in 2007-08 were able to claim a 100 per cent deduction on their investment of $50 million into forestry schemes.

But Timbercorp's administrator, KordaMentha, has called a halt to planting the forestry schemes from 2007-08 because it regards them as insolvent, raising questions about the performance of the schemes in line with the tax product ruling.