(MONEY Magazine) – Congress can cut taxes all it wants, but if your tax preparer doesn't know all the rules--and MONEY's tax test shows that most don't--you might actually end up paying more. Last November, for the eighth time since 1987, MONEY sent a financial profile of a hypothetical family to 60 tax professionals who agreed to prepare the family's tax return based on the information provided. Forty-six ended up completing the test, including 31 certified public accountants, 12 enrolled agents and three others who prepare tax returns for a living. The disturbing results: For the seventh time in the history of the test, no two test takers came up with the same bottom line. Worse still, for the third time, no one turned in an error-free return.

What was especially surprising this time around was how widespread--and costly--some mistakes were. The test's author, Mark Castellucci, a C.P.A. from Davis, Calif. and the winner of last year's MONEY tax test, calculated the lowest legal tax at $37,105. Castellucci acknowledges that his computation is not the only possible correct answer, since the tax law itself is ambiguous in some areas. Consider, for example, the disagreement between Castellucci and C.P.A. David Walther of Mueller Prost Purk & Willbrand in St. Louis, who vetted the MONEY test for accuracy. One argued that the expenses on a rental property were no longer deductible once the tenants moved out; the other argued just as persuasively that the expenses were deductible until the property was sold. Still, you can't blame ambiguity for the fact that the contestants' answers ranged from $34,240 to $68,912--a chasm of 101% (see the graph at right). That means our fictional family could have underpaid their tax by nearly $3,000 or paid nearly double what they owed. (See the box on page 106 on the pros who were closest to--and furthest from--our model return.)

Below we reveal six situations that thrashed the pros and that are likely to surface at some point on the typical Money reader's return. But first meet the Johnsons, our fictional family. Ken, 60, a self-employed computer consultant, and Barbara, 45, an architect, have two children: Joy, 20, a full-time college student who lives away from home, and Craig, 12. In addition to wages and self-employment income of $72,775, Ken received a $142,000 payout from his 401(k) when he took early retirement in February 1997; Barbara rolled over a $127,000 retirement payout when she switched jobs in November 1997. The Johnsons' investments include stocks, bonds, mutual funds and real estate.

Here are the pros' most common mistakes, starting with the costliest:

1 MISCALCULATING THE TAX DUE ON A RETIREMENT PAYOUT

Because Ken was 59 1/2 when he took his $142,000 early-retirement distribution in 1997, he was eligible for special tax treatment known as five-year averaging. This technique lets you pay tax on your payout as if you'd received the money over five years instead of all at once. But four preparers didn't realize Ken could use five-year averaging--even though his birth date was clearly given on the first page of the test--and thus kneecapped him with an additional $26,558 in tax. Another 14 contestants carelessly flubbed the averaging calculation by using a 1996 rate, for a tax overstatement of $420. Two pros erred in favor of the Johnsons by wrongly applying a 10-year averaging calculation, which lowballed Ken's tax by $1,010. Unfortunately, 10-year averaging is available only to taxpayers born before 1936.

2 FAILING TO GRASP THE NEW TAX RULES ON HOME SALES

In May 1995, when the Johnsons bought and moved into their current home, they were unable to sell their former residence, where they had lived for nine years. So they rented out the house for two years, finally selling it on June 30, 1997, for a gain of $35,727. Under the tax law passed last year, a couple who sell a primary home after May 6, 1997 can completely avoid tax on up to $500,000 of profit, provided they had lived in the house for at least two out of the five years before the sale. The Johnsons clearly met that requirement. Yet eight preparers obviously didn't know that the new law applied in the Johnsons' case and thus wrongly counted the gain as taxable, for a painful overstatement of $8,718.

3 DOUBLE-COUNTING THE TAX DUE ON STOCK OPTIONS

On Jan. 21, 1997, Ken exercised nonqualified stock options from his former employer. On that day, the difference between the option price and the stock's fair market value came to $8,000--an amount that was correctly reported on Ken's W-2. But seven contestants didn't realize that the $8,000 was included in Ken's taxable wages and so taxed the amount twice--once as ordinary income and again as a short-term capital gain. Tax overstatement: $2,408.

4 OVERLOOKING A TAX-SAVING LOOPHOLE ON A 401(K) LOAN

When Barbara switched jobs in 1997, she still owed $15,300 on a loan taken from her 401(k) years earlier. So her former employer simply deducted that amount from her account before rolling over the stash to an Individual Retirement Account. Unfortunately, that maneuver exposed Barbara to tax and a 10% penalty on the $15,300. Reason: You have 60 days from a rollover to add an amount to the IRA that is equal to an outstanding loan balance withheld by your employer. If you don't--and Barbara didn't--the amount is deemed a premature withdrawal, subject to tax and penalty.

What an astounding 43 test takers didn't know is that this is a case where Uncle Sam has a heart: It turns out that if you have a medical deduction and a premature 401(k) withdrawal in the same year, you can reduce the early-withdrawal penalty by an amount equal to 10% of your deduction. In 1997 the Johnsons' medical write-off came to $5,066, so they qualified for a $507 exception to the penalty. That reduced the hit from $1,530 to just $1,023. Unfortunately, all but three test takers made the Johnsons pay the full penalty.

Important note: Last year's tax law added similar exceptions to the fine for early withdrawals from IRAs. For example, you may not have to pay the penalty if you take an early IRA withdrawal to pay for medical insurance during unemployment. Such leniency shouldn't encourage you to tap your IRA early, but if you have to dip into the stash, make sure you're not hobbled later by unnecessary penalties.

5 OVERSTATING THE CAPITAL GAIN ON A MUTUAL FUND REDEMPTION

The tax law gives you four ways to compute your gain when you sell shares in a mutual fund: first in, first out (FIFO); single-category averaging; double-category averaging, and specific identification. The method you use can result in different tax-due amounts. For instance, when the Johnsons received $15,000 on a mutual fund redemption in 1997, the most advantageous method was double-category averaging, in which you compute the average cost per share for your long-term and short-term holdings and sell shares from the category that yields the better tax result. For the Johnsons, double-category averaging resulted in a gain of $1,430.

But 28 preparers used different methods and caused the Johnsons to pay more tax than necessary. Two of them decided to use FIFO--a method that assumes you sold shares in the order you bought them--which resulted in a gain of $1,720 and a tax overstatement of $72. The other 26 used single-category averaging--that is, when you average the cost of all your shares, regardless of how long you held them--which yielded a gain of $1,480 and an additional tax of $10. To be sure, the overages here are not extreme. But such a mistake could have resulted in a substantial overstatement if the couple had pocketed more on the sale. Say, for example, that the Johnsons had received $150,000 when they sold their shares. A preparer who chose to use FIFO would have inflated their tax bill by $664.

6 MISJUDGING WHO CAN BE CLAIMED AS A DEPENDENT

If your child is a full-time college student under age 24, you can claim him or her as a dependent--as long as you provide more than half of the child's support. The confusion lies in what constitutes support. Indeed, 30 preparers understated the Johnsons' tax by $724, wrongly thinking the couple were entitled to the write-off. What confused some of them was that in 1997 the Johnsons gave Joy $12,000--a sum that did, in fact, amount to more than half of her total outlays for the year. But since Joy was able to pay her own way with money from a scholarship, a student loan and a part-time job, she invested the entire $12,000 her parents gave her in savings bonds. The key: For the parents' contribution to qualify as support, they must be able to prove that the money was actually spent on items of support during the year--not invested.

True, a mistake that reduces your tax bill might feel less painful than one that results in an overpayment--at first. But remember, it's you, not your tax pro, who pays in an audit. Whatever the errors on your return, one lesson they teach is that what you don't know can cost you dearly.