REG CPA Exam Guide

Studying for FAR

The REG CPA Exam is often broken into two parts: taxation and law. Within those topics are Business Law and Federal tax procedures for a variety of entities. While the topics are relatively similar, the breadth beneath each topic is expansive. Candidates should have a firm understanding of tax concepts and how to apply them and know the ins and out of business law to pass the exam.

To help you get more comfortable with the REG CPA Exam, we’ve put together everything you need to know about the exam, including the structure, content, scoring, and best practices.

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Structure of REG

REG CPA Exam Format

The REG section format is broken down into the following:

Pre-Exam:

  • Section 1: Welcome and Launch Code
  • Section 2: Confidentiality and Section Information

Exam:

  • Testlet 1: 38 Multiple Choice Questions
  • Testlet 2: 38 Multiple-Choice Questions
  • Testlet 3: 2 Task-Based Simulations
  • Testlet 4: 3 Task-Based Simulations
  • Testlet 5: 3 Task-Based Simulations

Post-Exam:

  • Survey

REG CPA Exam Questions

REG has two types of questions within the 5 testlets:

Multiple Choice Questions – These are one sentence to paragraph length questions with four potential answers. Of the total 76 multiple choice questions (MCQs) on the REG CPA Exam, 12 are pretest questions and do not count toward a candidate’s score.

Task-Based Simulations – These are practical questions requiring candidates to type in answers, and may include a research question, filling out a portion of a tax return, or calculating specific tax allocations. Of the 8 task-based simulations (TBSs), one is a pretest question and does not count toward a candidate’s score.

Time Allocation

Each section of the pre-exam takes 5 minutes for a total of 10 minutes before the exam starts.

The actual REG CPA Exam is four hours long with one 15-minute break built in between the first and second task-based simulation testlets. There are also two optional breaks, one after the first multiple choice testlet and one after the second multiple choice testlet, although the timer does run during these breaks.

When taking the exam, candidates should keep track of the time in relation to how many questions they have completed and how many they must finish. A good way to discover how to best allocate your time is to take a few practice exams, and make mental notes on when you need to move on from certain sections of the exam in order to finish each part in time.

Candidates do not need to take the entire four hours on the exam and are not penalized for finishing early.

Content

Like all four parts of the CPA Exam, the content of the REG CPA Exam is unique and covers the tax side of the profession.

A High-Level Overview

CPA Exam REG questions are based on five content areas, listed below with related exam content percentages:

  • Area I: Ethics, Professional Responsibilities and Federal Tax Procedures 10-20%
  • Area II: Business Law 10-20%
  • Area III:Federal Taxation of Property Transactions 12-22%
  • Area IV: Federal Taxation of Individuals 15-25%
  • Area V: Federal Taxation of Entities 28-38%

Based on this information, the REG CPA Exam is heavy on Federal Taxation, with less emphasis on Business Law and Tax Procedures.

Within these content areas, different skill levels are tested, which are listed below with their exam content allocation percentage:

  • Level I: Remembering and Understanding 25-35%
  • Level II: Application 35-45%
  • Level III: Analysis 25-35%

Candidates looking to take the REG CPA Exam should not only have a strong understanding of taxation concepts but know how to apply them to specific situations. Candidates will likely face more application and analysis within the task-based simulation portions of the REG Exam.

Section Details

To help you better understand what specific topics the AICPA will be testing on, we’ll go over the specific content groups within each section of REG.

Area I: Ethics, Professional Responsibilities and Federal Tax Procedures

  1. Ethics and responsibilities in tax practice
    • Regulations governing practice before the IRS
    • Internal Revenue Code and regulations related to tax return preparers
  2. Licensing and disciplinary systems
  3. Federal tax procedures
    • Audits, appeals and judicial process
    • Substantiation and disclosure of tax positions
    • Taxpayer penalties
    • Authoritative hierarchy
  4. Legal duties and responsibilities
    • Common law duties and liabilities to clients and third parties
    • Privileged communications, confidentiality and privacy acts

Area II: Business Law

  1. Agency
    • Authority of agents and principles
    • Duties and liabilities of agents and principles
  2. Contracts
    • Formation
    • Performance
    • Discharge, breach and remedies
  3. Debtor-creditor relationships
    • Rights, duties and liabilities of debtors, creditors and guarantors
    • Bankruptcy and insolvency
    • Secured transactions
  4. Government regulation of business
    • Federal securities regulation
    • Other federal laws and regulations
  5. Business structure
    • Selection and formation of business entity and related operation and termination
    • Rights, duties, legal obligations and authority of owners and management

Area III – Federal Taxation of Property Transactions

  1. Acquisition and disposition of assets
    • Basis and holding period of assets
    • Taxable and nontaxable dispositions
    • Amount and character of gains and losses, and netting process
    • Related party transactions
  2. Cost recovery (depreciation, depletion, amortization)
  3. Estate and gift taxation
  4. Transfers subject to gift tax
  5. Gift tax annual exclusion and gift tax deductions
  6. Determination of taxable estate

Area IV – Federal Taxation of Individuals

  1. Gross income (inclusions and exclusions)
  2. Reporting items from pass-through entities
  3. Adjustment and deductions to arrive at adjusted gross income and taxable income
  4. Passive activity losses
  5. Loss limitations
  6. Filing status
  7. Computation of tax and credits
  8. Alternative Minimum Tax

Area V – Federal Taxation of Entities

  1. Tax treatment of formation and liquidation of business entities
  2. Differences between book and tax income
  3. C corporations
    • Computations of taxable income, tax liability and allowable credits
    • Net operating losses and capital loss limitations
    • Entity/owner transactions, including contributions, loans and distributions
    • Consolidated tax returns
    • Multijurisdictional tax issues
  4. S corporations
    • Eligibility and election
    • Determination of ordinary business income (loss) and separately stated items
    • Basis of shareholder’s interest
    • Entity/owner transactions (including contributions, loans and distributions)
    • Built-in gains tax
  5. Partnerships
    • Determination of ordinary business income (loss) and separately stated items
    • Basis of partner’s interest and basis of assets contributed to the partnership
    • Partnership and partner elections
    • Transactions between a partner and the partnership
    • Impact of partnership liabilities on a partner’s interest in partnership
    • Distribution of partnership assets
    • Ownership changes
  6. Limited liability companies
  7. Trusts and estates
    • Types of trusts
    • Income and deductions
    • Determination of beneficiary’s share of taxable income
  8. Tax-exempt organizations
    • Type of organizations
    • Obtaining and maintaining tax exempt status
    • Unrelated business income

CPA Exam Scoring

In the REG CPA Exam, 50% of a candidate’s score is derived from MCQs while 50% is derived from task-based simulations. An exam score of 75 or more is required to pass.

Candidates should keep in mind that there are no penalties for wrong answers. A correct answer gains points, no answer gets zero points and a wrong answer gets zero points. Therefore, it is always good to guess at an answer as opposed to leaving it blank; if you get it right, you’ll receive points toward a passing score.

Multiple Choice Question Scoring

Each candidate is presented with a multiple choice testlet of ‘medium’ difficulty first. This difficulty level refers to the difficulty, on average, of the questions in the testlet. Some may be harder, some may be easier, but on average, they are of medium difficulty.

If a candidate does well on the first testlet, the second testlet will, on average, be more difficult. If a candidate does average or not well on the first testlet, the second testlet will remain at ‘medium’ difficulty.

Difficult questions are worth more than medium questions. A candidate who does well on the first testlet but struggles with the second testlet with more difficult questions, is not penalized since correct answers on this testlet are worth more. Keep in mind, it is still possible to pass the exam if a candidate gets two medium testlets. If a candidate performs well on the second medium testlet, she or he can still pass the exam provided a good score is achieved on the task-based simulations.

Task-Based Simulation Question Scoring

REG CPA Exam simulations are pre-set and do not change in relation to a candidate’s performance. However, candidates can receive partial credit on non-research based task-based simulations by answering part of the questions correctly.

REG CPA Exam Tips

REG is very tax heavy, which can sometimes be difficult for candidates who struggle with taxation. To help you put your best foot forward on REG, follow these 6 REG CPA Exam tips.

Tip 1: Take REG Based on Your Strengths – Your 18-month window for passing the CPA Exam starts when you take your first exam. The study time before that first exam doesn’t count toward your 18 months. Therefore, to maximize your chances of passing all four parts of the CPA Exam in 18 months, it makes sense to take the exam you expect to study the most on first. If you’re strong in tax, or work as a tax accountant, it would be a good idea to save REG for your last exam, because it won’t require as much studying. If you aren’t great at tax, it might be a good idea to take REG after FAR, since there is a fair amount of overlap in concepts.

Tip 2: Become an Excel Expert – The spreadsheet tool on the CPA Exam isn’t like Microsoft Excel, it is Microsoft Excel. By learning a few simple tricks, like how to create and execute functions and how to navigate easily within the spreadsheet, you can use the tool to your advantage on both multiple choice and task-based simulation questions. Want a helping hand? Surgent offers an Excel course specifically for the CPA Exam.

Tip 3: Get Familiar with REG Sims – Take your time going through Regulation simulations and practice exams, and really get a feel for what tax questions are asking. If you don’t have any tax experience or took only one tax class in college, it’s really importation you are both familiar with the concepts and can apply them in a simulation setting. It’s a great place to get partial points also, so make sure you’re at least guessing at an answer.

Tip 4: Make Sure Your Study Materials are Up to Date – REG updates relative to new tax laws; the 2019 exam will start to test the Tax Cuts and Jobs Act, which will affect all Federal Taxation areas. If you’re planning on sitting for REG in 2019, you need to make sure your materials reflect these changes. Surgent provides free updates to exam content and unlimited access until you pass; you won’t have to buy new materials or try to study with old materials.

Tip 5: Spend More Time on Federal Taxation Procedures – Between 55% and 85% of your exam is going to be based on Federal Tax Procedures of property transactions, individuals and entities. You want to make sure you’re taking this into account while you’re studying. These are the areas you should take the time to dig into and understand. Make sure you also have a good understanding of Business Law and Ethics, Professional Responsibilities and Federal Tax Procedures, but spend most of your time on Federal Tax Procedures.

Tip 6: Find Study Materials that Help You Study More Efficiently – Candidates are often told there is a certain hour threshold that must be met before an exam can be passed. However, not everyone learns the same, and candidates often waste time trying to attain a certain number of study hours even if they’re completely ready to sit for the exam. To study more efficiently, look for a CPA Review course that is adaptive and can help you efficiently learn difficult topics. Surgent’s learning materials feature A.S.A.P. Technology, which helps students pass in half the time, and ReadySCORE which helps candidates objectively know when they’re ready to sit for the CPA Exam.

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