REG is the section candidates most consistently underestimate.
It’s not because REG is harder than AUD or FAR in absolute terms. It’s because candidates go in thinking it’s mostly tax — stuff they’ve seen in the real world — and then discover that the exam also covers business law, entity taxation, and a level of individual tax detail that goes well beyond what most accountants deal with in their day-to-day work.
The other thing that makes REG tricky is that it rewards precision. Small details matter. The difference between the 3-year statute of limitations and the 6-year statute. The exact threshold for when a preference transfer is avoidable in bankruptcy. Whether an item is above-the-line or below-the-line. Getting close isn’t enough — the question has four choices and only one is right.
Here’s what the four areas look like and how to build the precision REG requires.
The four areas CPArcade covers in REG
Federal Tax Procedures and Professional Responsibilities
This area gets less attention than individual or entity taxation, but it shows up on the exam consistently and it’s very learnable. The statute of limitations — three years standard, six years for substantial omissions, unlimited for fraud. Filing deadlines and extensions. The failure-to-file penalty (5% per month, up to 25%) vs. the failure-to-pay penalty (0.5% per month, up to 25%). The combined penalty rule when both apply simultaneously.
Professional responsibilities covers the AICPA Statements on Standards for Tax Services — what a CPA can and can’t recommend, when a disclosed vs. undisclosed position requires different authority, and what to do when you discover an error on a prior year return.
These questions are rule-based in a way that rewards systematic study. Learn the rules, know the thresholds, practice the scenarios. The exam tests them in applied form — given this fact pattern, which penalty applies, or what should the CPA do — but the underlying rules are finite and learnable.
Individual Taxation
This is the largest and most complex area in REG. Gross income and exclusions — what’s in, what’s out, and why. Above-the-line vs. below-the-line deductions. The standard deduction vs. itemizing. Filing status and its effect on tax rates and bracket thresholds. Capital gains — short-term vs. long-term, netting rules, the Section 121 home sale exclusion. Passive activity losses. Investment interest expense limitations. Self-employment tax and the deduction for half of it. The at-risk rules.
The breadth here is real. And unlike some other areas where you can get by with conceptual understanding, individual taxation rewards candidates who know the specific numbers — contribution limits, phase-out thresholds, credit phase-outs.
The good news is that individual tax questions on REG tend to be calculation-based in a predictable way. You’ll get a fact pattern with numbers and be asked to compute something — AGI, taxable income, a specific deduction amount. If you know the formula and the rules, you can answer these quickly and accurately.
Entity Taxation
Partnership taxation, S corporations, and C corporations. Each has distinct rules, and the exam tests all three.
For partnerships: the Section 721 non-recognition rule on contribution, outside basis calculations and the ordering rules, distributive share vs. distributions, guaranteed payments, and the Section 751 hot assets rules.
For S corporations: the 100-shareholder limit, one class of stock requirement, stock basis ordering (income first, then distributions, then losses), and the built-in gains tax.
For C corporations: the 21% flat rate, the dividends received deduction, earnings and profits calculations, the treatment of property distributions, and the accumulated earnings tax.
This area rewards candidates who understand why each entity type is taxed the way it is — the underlying tax policy logic — not just the mechanical rules. The exam will present scenarios designed to test whether you know the distinction between, say, how a partnership distribution is treated compared to an S corporation distribution. If you understand the conceptual basis for each, the distinctions become manageable.
Business Law
This is the area candidates most commonly neglect and most commonly wish they hadn’t. Contracts — offer, acceptance, consideration, defenses, the statute of frauds. Agency law — actual authority, apparent authority, disclosed vs. undisclosed principals. The UCC — risk of loss, the battle of the forms, the perfect tender rule. Secured transactions under Article 9 — attachment, perfection, priority. Bankruptcy — Chapter 7 vs. Chapter 11, the automatic stay, preferential transfers, fraudulent conveyances.
Business law is heavily tested on REG and it’s almost entirely multiple choice, which means it’s one of the more learnable parts of the section. The rules are specific, the questions are applied, and candidates who put in the practice time consistently do well here.
The trap is treating business law as secondary material. It’s not. It’s a meaningful percentage of your REG score and it’s an area where candidates who prepare well have a real advantage over those who don’t.
How to approach REG practice
REG rewards candidates who practice the calculation-based questions enough to build speed and the rule-based questions enough to build precision. Those are two different skills and they require two different modes of practice.
For calculation questions — individual tax especially — time yourself. You need to be able to work through an AGI calculation or a capital gain netting problem in under two minutes. That speed only comes from repetition.
For rule-based questions — tax procedures, business law — focus on the precision of your knowledge. Not “somewhere around three years” but “exactly three years from the later of the filing date or the due date.” The exam exploits vague knowledge. Specific knowledge is what protects you.
Five daily REG questions rotating across all four areas keeps the material active without requiring a two-hour block. The rotation matters — candidates who only practice their comfortable areas (usually individual tax for people with tax backgrounds) consistently get surprised by business law and entity tax on exam day.
REG isn’t just tax. Practice it like it isn’t.
Practice this section inside CPArcade.
Use the Daily Challenge for fast reps or the Full Game when you want a more competitive study session.