Everything you need to know to successfully pass REG!
The Regulation (REG) CPA exam section is more than just “the taxation” section of the Uniform CPA Examination. Yes, the REG section wants you to understand individual tax, taxation for entities, and property tax law, areas like the ethics section and business law are the CPA exam sections’ content areas that CPA exam candidates tend to neglect.
To pass the REG CPA exam, you must not only understand the robust tax calculations, but you must also understand conceptually why the Internal Revenue Service (IRS) would intuitively apply that specific tax law. Universal CPA Review’s Regulation CPA exam study material not only covers all of the necessary information that is covered in the AICPA exam blueprints, but it also gives goes the extra mile and breaks down each of these five content areas with a storytelling approach so that you can think like a tax practitioner.
Over the last 5 years, the pass rate for the REG CPA exam has an average of around 54%, with both 2021 and 2022 CPA Exam pass rates trending above that average.
Understanding the structure of the REG CPA Exam is key for being prepared on exam day. Let’s walk through everything you should be aware of leading up to the day that you walk into the Prometric center and knock your exam out.
You will have approximately 4 hours to finish each of the five testlets on your REG CPA exam. The AICPA provides candidates with a 15-minute break upon wrapping up their 3rd testlet. Keep in mind, that this break is not going to count towards your 4-hour exam. So, take your time, enjoy a quick snack and sip on some water to stay hydrated. Upon returning to your exam computer, you will be prompted with the question of whether you’d like to continue with your REG exam. Even if you are on a roll, we always recommend utilizing the breaks offered within the exam. It is totally normal to feel fatigued and you don’t want to miss silly points due to error. Once the 4 hours of exam time expire, your exam will automatically be closed and submitted for grading. Keep in mind, that any questions that are still in progress will be submitted, even if they are unanswered. You will likely be wrapping up your final task-based simulation, which you can potentially receive partial credit for. If you are interested to learn more about how the CPA exam is graded, we have a great article outlining this information.
The REG CPA Exam consists of a total of 76 multiple-choice questions, 12 of which are pretest questions, meaning they will not be graded. The REG exam will also have 8 task-based simulations broken out over 3 testlets. The simulation portion of the REG exam will contain one pretest question, meaning one of the simulations will not be graded.
Multiple choice questions – Can either be mathematical or conceptual, depending on the concept that is being tested. Unlike the other three sections, the question type on the Regulation (REG) exam is rather predictable. After all, there is only so many ways that you can calculate the basis of a corporation. With that being said, if you can identify the rules for the most common calculations, you should be able to do quite well on the multiple choice portion of this exam.
Task-based simulations – Will test your ability to think critically about the topics. There is no black-and-white way to study for task-based simulations, regardless of the CPA exam section. If you can read the sim description, and you can take a step back and remember the 2-3 types of questions that they like to ask related to that topic, it becomes a lot easier to navigate your way through the sim exhibits because now you know what it is you’re looking for. The exhibits provided on a simulation are there for a reason. So, read through them carefully and ask yourself, how does this apply to the REG CPA Exam topics?
The REG CPA exam consists of 5 total testlets. The first two testlets on your exam will be exclusively multiple-choice questions, with 76 total questions broken out into 38 questions per testlet. The third testlet contains 2 task-based simulations, while the final two testlets contain 3 sets of task-based simulations. Please note, that you will generally have a period of 10 minutes before your exam starts to go through the welcome and confidentiality screen. Once your 4-hour exam ends, you will receive a post-exam survey to fill out.
While Universal CPA Review aligns with the AICPA blueprint for the REG CPA exam, you should still be familiar with the REG blueprint. There are five content areas that the Regulation (REG) CPA Exam section wants you to be prepared for on exam day:
A. Ethics and responsibilities in tax practice
B. Licensing and disciplinary systems
C. Federal tax procedures
D. Legal duties and responsibilities
A. Agency
B. Contracts
C. Debtor-creditor relationships
D. Federal laws and regulations (e.g., employment tax, qualified health plans and worker classification)
E. Business structure
A. Acquisition and disposition of assets
B. Cost recovery (depreciation, depletion and amortization)
C. Gift taxation
A. State and local government concepts
B. Format and content of the financial section of the Annual comprehensive financial report (ACFR)
C. Deriving government-wide financial statements and reconciliation requirements
D. Typical items and specific types of transactions and events: measurement, valuation, calculation and presentation in governmental entity financial statements
A. Tax treatment of formation and liquidation of business entities
B. Differences between book and tax income (loss)
C. C corporations
D. S corporations
E. Partnerships
F. Limited liability companies
G. Trusts
H. Tax-exempt organizations
Everybody has their own preferences in the order that they take the CPA exams, but we have found that CPA candidates tend to pass Regulation at a higher rate than the other three sections. While this section still requires a lot of time and dedication, this is one exam that you can consider taking last, or next to last. However, if you have a professional tax background, there is something to be said for knocking out the section you are most comfortable with first, to get the ball rolling!
Every CPA review course is different, but if you’re attacking the REG CPA exam section, we recommend using our CPA study materials in the following way:
Step 1) Watch the video lectures – Understand the REG CPA Exam contents at a high level by watching the Universal CPA Review bite-sized animated video lectures. This will help you understand conceptually why what is happening, is happening!
Step 2) Review the study guides – If you’re using a more traditional CPA review course, you can’t just look at a block of text and assume you understand what the CPA exam materials are teaching you. You must think intuitively and paint the picture in your head. Universal CPA Review literally does that for you by flooding its study guides with visuals throughout the textbook materials provided.
Step 3) Practice with CPA exam questions – Everybody knows that practicing CPA exam multiple choice questions is critical for reiterating the most important concepts. However, it is nearly impossible to pass the CPA exam without performing well on task-based simulations. Regardless of the question type, you need to know the concepts so that when you get to the Prometric center, you can think critically about the topic being asked and why it’s important before you start navigating through the multiple-choice questions and simulations.
Watch our video tutorial on how to set up a cumulative practice test and why they are so important!
Earlier in the REG CPA exam guide, you learned the format of the the REG CPA exam. The exam includes multiple-choice questions and task-based simulations. You will have a total of 4 hours to complete the exam, but how much time should you spend on each question so you can complete the exam within the allotted time?
Multiple-choice questions – We recommend spending 2 hours on the two multiple-choice testlets. Since there are 76 multiple-choice questions, we recommend averaging about 1.6 minutes per question. You will spend more time on difficult questions, but less time on the easier questions. It’s very important not to spend too much time on a particular question!
Task-based simulations – The remaining 2 hours can be spent completing the 8 task-based simulations. One of the simulations will be the authoritative research simulation, and you should spend no more than 10 minutes on it. The score weighting is significantly lower for the research simulation as compared to the other simulations. That means you can spend 15 mins on average for the other 7 simulations. To efficiently solve these simulations, you will need to read the instructions, quickly understand what information is in the exhibits, and then complete it!
As mentioned, there are five content areas that break down exactly what it is you need to prepare for come exam day. For each of the five content areas, we have broken down a few tips that will be the difference in getting a question right or wrong:
Ethics:
This is mostly straightforward. At a high level, you should understand the different rules for tax practitioners, tax preparers, and taxpayers.
Business law:
Business law is sort of like the governmental accounting section on the FAR exam. It’s a lot of information but collecting these points can make or break the 75% exam score that you are looking for. Prioritize Contracts, Agency, Secured Transactions, Suretyship, and Bankruptcy, in that order.
Individual Tax REG Study Tips:
Know the differences in what’s included vs excluded in gross income. In other words, you must know what income items taxable vs are nontaxable. Understand what tax-exempt interest income is (e.g., interest from state and local bonds, Series EE bonds, and interest from bonds from Guam and Puerto Rico). Also, know the differences in what an adjustment vs is an itemized deduction. There is no excuse in getting these questions wrong. Side hint, student loan interest is an adjustment, not an itemized deduction.
Property Tax REG Study Tips:
You should understand basis calculations for acquired property, inherited property, and gifted property. For gifts and inherited property remember that “special rules apply”. You also must know non-taxable gains from homeowners’ exclusion, like-kind exchanges, involuntary conversions, etc.
Entity Tax REG Study Tips:
Understand what Universal CPA Review calls “the big four ticket items”, which consist of entity formation, taxation, non-liquidating, and liquidating distributions. Instead of studying these four items entity by entity, instead, study each of these big four items at a time. Example: study formation for C Corp. S Corp. vs partnership repeat for the other three items.
The REG CPA exam is definitely a challenging CPA exam section. While the mathematical portion is mostly adding and subtracting, knowing what to add and subtract is what adds an element of difficulty. Interpreting the various rules and regulations within the Internal Revenue Code (IRC) is ultimately what the bulk of this exam is about. Like all other sections, understand that material conceptually, and you will be in good shape. If you want to pass the REG exam, then start a free 7-day trial today!
Unfortunately, there is not a set amount of study time that it takes to be sufficiently prepared to pass REG. Every candidate will move through the material at a different pace. We generally suggest you plan for 125 to 140 hours of studying when you develop your initial study plan.
Some would actually refer to it as one of the easiest, and CPA exam pass rates would tend to agree. However, every CPA candidate is different. If you have an auditing background, this tax-heavy exam might be a harder one for you.
Most candidates actually prefer taking other sections like FAR or AUD first, but everybody is different. If you have a tax background, and your strategy is to pass one section to get the 18-month clock ticking, then you can certainly take the REG CPA exam section first!
The hope is that you only need to take REG once! However, if you do end of failing, you can take it as many times as you need, until you pass. With continuous testing, you no longer have to wait until the succeeding testing window to sit for a retake.
There are 5 testlets on the REG exam. Testlets 1 and 2 have 38 multiple choice questions each. Testlet 3 contains 2 simulations. Testlets 4 and 5 contain 3 simulations.
This amounts to a total of 76 multiple choice questions and 8 simulations. It is important to understand that there are 12 pretest multiple choice questions and 1 pretest simulation. Pretest questions do not count towards your score. You will not know which multiple choice questions or simulations are tagged as pretest.
The pass rate for REG has averaged around 59 to 61% over the last five years. REG continues to have the highest pass rate.
You will have 4 total hours to complete the exam. You will have an option 15 minute break after testlet #3 which does not count towards the 4 hour total.
Multiple choice questions will account for 50% of your score, with task-based simulations accounting for the other 50% of your score.
Everything within the AICPA blueprint is fair game come exam day. With that being said, the blueprint does break out the weight of each content area. It’s safe to assume that you are likely to see a heavy amount of entity-level taxation questions, including within the task-based simulations. Be prepared for miscellaneous topics such as Qualified Business Income (QBI), passive activity loss limitations, and rules for Section 1231 business transactions as well.
Yes, the bottom line is that the AICPA REG blueprints will change with the CPA Evolution. However, we do not expect any major or drastic changes. The Regulation section of the CPA Exam will change as tax laws change. Learn more about the CPA Evolution here.
If you are planning to study for other sections of the CPA exam soon, check out our detailed guides for AUD, BEC, and FAR! These comprehensive study guides will help you learn everything you need to know so that you can pass those sections and move on in your CPA journey!
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