Taxation and Regulation, known as REG, is a section that intimidates many CPA candidates because of the sheer volume of tax rules, phase-outs, and calculations involved. REG covers individual taxation, business taxation, entity taxation, and business law. The good news is that REG is one of the more predictable sections of the CPA exam. Certain topics appear consistently, and a focused study approach targeting these high-yield areas can make the difference between a 74 and a passing score.
This guide provides a strategic approach to studying for REG, with emphasis on the study techniques that work best for tax-heavy material.
Understanding the REG Exam Structure
REG tests your knowledge of federal taxation and business law. The content areas are weighted as follows:
- Ethics, Professional Responsibilities, and Federal Tax Procedures (10-20%): Circular 230, tax return preparer penalties, and IRS procedures.
- Business Law (10-20%): Contracts, the Uniform Commercial Code, debtor-creditor relationships, agency, and business structure regulations.
- Federal Taxation of Property Transactions (12-22%): Basis, gains and losses, like-kind exchanges, and involuntary conversions.
- Federal Taxation of Individuals (15-25%): Gross income, adjustments, deductions, credits, and filing status.
- Federal Taxation of Entities (28-38%): C corporations, S corporations, partnerships, LLCs, trusts, and estates.
Tax Law Study Strategies
Tax law is rules-based, which means memorization plays a bigger role in REG than in AUD. However, blind memorization without understanding leads to confusion when the exam presents scenarios that combine multiple rules.
The Layered Approach
Study tax in layers. Start with the big picture framework, then add detail:
- Layer 1 - Structure: Understand the overall flow of a tax return. For individuals, this means gross income minus adjustments equals AGI, minus deductions equals taxable income, times tax rate minus credits equals tax liability.
- Layer 2 - Categories: Learn what falls into each category. What is included in gross income? What are above-the-line versus below-the-line deductions?
- Layer 3 - Details: Now learn the specific rules, phase-outs, and limitations for each item.
- Layer 4 - Exceptions: Finally, learn the exceptions and special cases that the exam loves to test.
This layered approach prevents the overwhelming feeling of trying to memorize everything at once.
Mastering Basis Calculations
Basis is the single most important concept in REG. It appears in property transactions, entity taxation, and individual taxation. If you understand basis thoroughly, you can answer a significant portion of REG questions correctly.
Types of Basis to Master
- Cost basis: The starting point for most assets. Purchase price plus acquisition costs.
- Adjusted basis: Cost basis adjusted for depreciation, improvements, and other modifications.
- Carryover basis: Used in gifts and certain tax-free transactions. The recipient takes the donor's or transferor's basis.
- Fair market value basis: Used for inherited property. The heir receives a stepped-up (or stepped-down) basis to FMV at the date of death.
- Substituted basis: Used in like-kind exchanges and involuntary conversions. New basis equals old basis adjusted for boot and gain recognized.
- Partnership and S corporation basis: Tracks the owner's investment in the entity and limits loss deductions.
Create a basis calculation worksheet that you practice repeatedly. Work through the math until computing adjusted basis for any scenario feels automatic.
Business Law Memorization
Business law represents a smaller portion of REG but catches many candidates off guard because it is so different from tax material. The most effective approach is to study business law as a distinct block, separate from tax.
High-Yield Business Law Topics
- Contracts: Formation elements (offer, acceptance, consideration), the statute of frauds, breach remedies, and third-party rights.
- Agency: Authority types (actual, apparent, implied), principal liability, and agent duties.
- Debtor-creditor: Bankruptcy chapters (7, 11, 13), secured transactions under UCC Article 9, and suretyship.
- Business structures: Formation, liability, and taxation differences among sole proprietorships, partnerships, LLPs, LLCs, S corporations, and C corporations.
Use comparison charts for business law topics. A side-by-side chart showing how each business entity type handles liability, taxation, formation, and management is invaluable for answering entity comparison questions.
Entity Comparison Charts
One of the most effective study tools for REG is a comprehensive entity comparison chart. Create a table with rows for each entity type (sole proprietorship, general partnership, limited partnership, LLC, S corporation, C corporation) and columns for:
- Formation requirements
- Liability of owners
- Taxation method (pass-through versus double taxation)
- Number of owner restrictions
- Basis calculation rules
- Distribution rules
- Special allocations availability
- Self-employment tax treatment
Review this chart daily during your final two weeks of study. The exam frequently tests your ability to distinguish between entity types, and having this information organized visually makes recall much faster.
Practice Approach for REG
REG practice should emphasize calculations and rule application. The exam tests whether you can apply tax rules to specific scenarios, so working practice questions is more valuable than re-reading notes.
- Complete at least 1,200 to 1,500 MCQs during your REG study period.
- After studying each topic, immediately work 30 to 40 related MCQs.
- For simulations, practice tax return preparation problems and basis calculation scenarios.
- Use the authoritative literature search for IRC section lookups, as REG simulations frequently include research questions.
REG Study Plan (9 Weeks)
This plan assumes 18 to 22 hours per week:
- Week 1: Ethics, professional responsibilities, and tax procedures. Complete 100 MCQs.
- Weeks 2-3: Individual taxation including gross income, deductions, and credits. Complete 250 MCQs.
- Week 4: Property transactions including basis, gains, losses, and like-kind exchanges. Complete 200 MCQs.
- Weeks 5-6: Entity taxation covering partnerships, S corporations, and C corporations. Complete 300 MCQs and begin simulation practice.
- Week 7: Business law. Complete 150 MCQs.
- Weeks 8-9: Comprehensive review, full practice exams, and targeted weak-area drilling. Complete 300 MCQs and 10 simulations.
Study REG Effectively with Think CPA
Think CPA breaks down REG into manageable, logically ordered modules with embedded practice questions that reinforce each concept as you learn it. Our entity comparison tools and basis calculation practice sets target the exact areas where REG candidates need the most help. If tax law feels overwhelming, Think CPA provides the structure to make it manageable.