CPA Regulation (REG) Section Practice Test

Federal Taxation of Entities, particularly the taxation of S Corporations, Partnerships (including LLCs taxed as partnerships), and C Corporations, constitutes the largest portion of the exam. You must be proficient in the formation, operation, distribution, and liquidation rules for each entity type, including the calculation of basis, allocation of income/loss, and the treatment of contributed property.

Business Law accounts for a significant portion (approximately 10-20%) of the REG section. Focus areas include contracts (formation, performance, breach), agency, debtor-creditor relationships (including bankruptcy), and business structure (formation, rights, and duties). While less voluminous than tax law, these concepts are tested rigorously in scenario-based questions requiring precise application of legal principles.

Concentrate on the AICPA Code of Professional Conduct, Treasury Department Circular 230 regulations governing practice before the IRS, and the concepts of independence, integrity, and objectivity. Understand the specific rules, their applications to various practice situations (e.g., contingent fees, confidentiality, conflicts of interest), and the consequences of non-compliance. These are often tested in multiple-choice questions and task-based simulations.

Yes. You must be able to compute individual Adjusted Gross Income (AGI), taxable income, and tax liability, including knowledge of inclusions, exclusions, deductions (above-the-line and itemized), credits (e.g., child tax credit, education credits), and the alternative minimum tax (AMT). Understanding the tax treatment of property transactions (basis, gain/loss recognition, like-kind exchanges) is also critical and frequently integrated into simulations.

REG simulations often require synthesizing knowledge from multiple areas into a single problem, such as calculating a partner's basis and distributive share, then determining the tax consequences of a distribution. Practice using the authoritative literature (the IRC) provided in the exam software. Develop a methodical approach: carefully read the fact pattern, identify the relevant tax year, determine the applicable entity or individual rules, and perform calculations step-by-step, documenting your work.