Is that tax preparer really qualified?(MONEY)

IF YOU'RE AMONG the 60 percent of Americans who use a tax preparer to fill out your annual return, tens of thousands of them are vying for your business. But the industry is largely unregulated; only three states--California, Oregon, and Maryland--require licenses. Everywhere else, a person with little experience or education can call himself a tax preparer and set up a business. And even among credentialed professionals, skill levels and experience can vary.

That's what the National Consumer Law Center, an advocacy group in Boston, found out last year when it worked with organizations in Philadelphia and Durham, N.C., to conduct "mystery shopper" tests of storefront tax preparers. They were investigating practices related to "refund anticipation loans," those high-interest, short-term loans secured by a taxpayer's refund (see article on facing page), to see whether fees and interest rates were clearly disclosed. But they stumbled onto an equally troubling problem: Some tax preparers seemed woefully unqualified to fill out a simple return.

Mistakes and bad advice

When a tester in Philadelphia, for example, handed a tax preparer Form 1098, a statement of mortgage interest, the preparer had to ask co-workers what to do with it. The same preparer made numerous errors on the mystery shopper's tax return, including failing to recognize $3,500 in unemployment compensation as taxable income and neglecting to include another $25 in interest income.

In Durham, a tax preparer told a mystery shopper not to report a dividend as income. "Essentially, they were advising the tester to commit tax fraud," says Chi Chi Wu, an attorney with the law center.

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Still, Wu is hesitant to give all retail tax centers a black mark. "At least the chains have some training," she says.