The ULTIMATE Guide to the Regulation (REG) CPA Exam: 2023 Edition

About half of the REG exam covers federal taxation of individuals and entities, so if you don’t have much tax experience going into the exam then plan to spend some meaningful time memorizing rules and learning how to prepare a tax return. That being said, REG is just like any other exam and can easily be conquered as long as you take the correct approach.

For this post, I’ve compiled everything you need to know about the REG CPA exam, including the content covered, the format and structure of the exam, the types of questions you’ll see, time management and other helpful tips you’ll need to pass the REG exam. Let’s dive in!

REG CPA Exam Topics and Skills Tested

Which Topics are Tested on the REG CPA Exam?

The REG CPA exam covers five key taxation and business law concepts, referred to as “content areas”, as follows:

1. Ethics, Professional Responsibilities and Federal Tax Procedures (10-20%)
2. Business Law (10-20%)
3. Federal Taxation of Property Transactions (12-22%)
4. Federal Taxation of Individuals (15-25%)
5. Federal Taxation of Entities (28-38%)

Since 60 – 80% of the exam revolves around taxation (Areas 3 – 5), folks with experience preparing tax returns may find REG a little easier to prepare for.

To learn more about these content areas check out the CPA exam blueprints for yourself.

What CPA Exam Skills are Tested on REG?

The CPA exam also tests range of higher order skills as opposed to simple memorization of facts and rules. There are three skill levels tested on the REG CPA exam, as follows:

As of July 1, 2021 the skill-level weightings for the REG CPA exam are:

• Evaluation – 0%
• Analysis – 25-35%
• Application – 35-45%
• Remembering and Understanding – 25-35%

REG CPA Exam Question Types

You’ll see two types of questions on the REG CPA exam:

1. Multiple-choice questions, and
2. Task-based simulations

While each question type is graded slightly differently (more on this below), MCQs and TBSs each make up 50% of your overall REG exam score, so you’ll want to prepare thoroughly for each type of exam question.

REG CPA Exam Format and Structure

The REG CPA exam consists of 5 testlets. The first 2 testlets include a total of 76 multiple-choice questions while the remaining 3 testlets include a total of 8 task-based simulations. See below for how the REG CPA exam is structured:

[table id=57 /]

REG CPA Exam Testing Process

REG Testlet Selection

The CPA exam uses a multi-stage adaptive testing approach for all of their multiple-choice testlets, which means your performance on the first MCQ testlet impacts the difficulty level of questions you’ll see on the second testlet.

Here’s an illustration of how this model works in practice:

Source: AICPA

As noted above, the first MCQ testlet will always be rated as “medium” difficulty, whereas the second MCQ testlet will be rated “difficult” or “medium” based on your testlet 1 performance. Also, the multi-stage adaptive testing approach only applies to the MCQ testlets and not the TBS simulations. The AICPA establishes the difficulty of task-based simulation testlets ahead of time so all of the TBS testlets will be the same difficulty level.

Operational vs. Pretest Questions

Another interesting aspect of the CPA exam is their use of “pretest” questions during the CPA exam. While most of the questions and simulations on the CPA exam are “operational” and count towards your exam grade, the AICPA also includes a handful of “pretest” questions on each exam that DO NOT count towards your exam score.

Why does the AICPA do this?

The AICPA is constantly developing new questions to keep up with new laws and accounting rules and needs a reliable way to determine whether new questions are fairly written or need improvement. Including these “pretest” questions within the live CPA exam and seeing how candidates perform allows them to gauge whether these new questions are too easy or too difficult. Questions and simulations that pass a successful “pretest” trial period will eventually become “operational” questions on future exams.

How Long is the REG CPA Exam?

The REG CPA exam is 4 hours long, with an optional 15-minute break between the third and fourth testlets that doesn’t count towards your exam time. You can take a break at any other point during the exam, but the clock will be running!

REG CPA Exam Grading

How is the REG CPA Exam Graded?

There’s a lot of confusion around how the CPA exam is graded so hopefully I can clear things up.

While MCQs and TBSs each make up 50% of your overall REG CPA exam grade, your final score isn’t simply the percentage of each question type you answered correctly. Here’s how each type of question is scored:

REG Multiple-Choice Questions

MCQs are graded as pass-fail, meaning there’s only 1 correct or “best” answer for each question and 3 incorrect ones. There’s no opportunity for partial credit on MCQs and no penalty for incorrect answers.

Due to the multi-stage adaptive approach on the MCQ testlets, your MCQ score depends on whether your second testlet was “difficult” or “medium” difficulty. In other words, MCQs from the “difficult” testlets are worth more than MCQs from “medium” difficulty” testlets when it comes to calculating your exam score.

That doesn’t mean one type of MCQ testlet is better than the other though. Mathematically speaking, you’re likely to get fewer “difficult” MCQs correct than “moderate” ones, so don’t worry if you think your second MCQ testlet is only a “medium” difficulty.

Many candidates get flustered on exam day because they think they did poorly on the first MCQ testlet, which ends up affecting their performance on later testlets. Don’t let this happen to you! Instead, keep a level head throughout the exam and just take whatever questions the exam throws your way.

Also, remember that the REG exam includes several pretest questions that don’t count towards your exam grade. If you’re caught off guard by several questions and feel like you’re bombing the exam, chances are they’re just pretest questions and they won’t impact your score.

REG Task-Based Simulations

TBSs don’t vary in difficulty like the MCQs, so each one is scored equally. Also, one TBS is a pretest simulation and doesn’t count towards your exam grade.

Given how the TBSs are structured you have the opportunity to earn partial credit on non-research TBSs, so try to follow the same advice here and answer each one completely and as best as you can, even if you’re unsure of the answer.

What is a Passing Score on the REG CPA Exam?

As with all CPA exam sections, a passing score for REG is 75.

Is the CPA Exam Graded on a Curve?

No. All grading for the REG CPA exam is performed electronically and automatically based on the weightings of the operational exam questions. There’s no bell curve or any other type of curve applied to the exam results.

REG CPA Exam Tips

What are the REG CPA Exam Pass Rates?

REG has fairly consistent pass rate of 50-60%, making it historically the second highest pass rate among the four CPA exam sections.

How Much Do I Need to Study for REG?

I’ve written a whole separate article on this topic, but the TL:DR is this:

Most candidates should plan to spend at least 90-110 hours studying for REG. Assuming you study ~15 hours each week, this translates to roughly 6-8 weeks of studying.

If you have work experience preparing tax returns then you may be on the lower end of this spectrum. Either way, the REG exam usually takes the most amount of time to prepare for after FAR.

REG CPA Exam Study Tips

1. Plan to Memorize…A LOT! – REG tends to be much more subjective and less logical than the other CPA exams because most tax and business law was written by, well, lawyers and not accountants. If you hate taxes or don’t work as a tax accountant then you’ll really need to do what you can to learn the individual and business tax forms like the back of your hand.
2. Crush MCQs to Gain Confidence – MCQs are generally the fastest and most efficient way to test your knowledge over any given CPA exam topic, so try to incorporate these into every study session and keep practicing until you develop a mastery of the material (consistently score ~85% or higher).
3. Take Regular Progress Tests – I recommend this approach for every CPA exam, but for REG it’s even more critical. There’s so much memorization required that it’s easy to lose your grasp over the finer details within just a few weeks. I recommend taking a progress test once a week to make sure you stay sharp all of the material you’ve covered to date and circle back on any topics where your performance may have dipped.
4. Leverage IRS Resources for a Deeper Understanding  – Unlike the other CPA exam sections, you can find tons of info about federal taxation portion of the REG exam directly on the IRS website. As a supplement to your CPA prep course, I suggest printing out the main tax forms covered on the exam (Form 1040 for individuals and Form 1120 for businesses) along with the IRS’ instructions, which give detailed explanations for how to fill out every field in each form. There’s also a mountain of extra material on their site if you need to take a deeper dive into a particular topic. Just be careful not to rely too much on the IRS website though, as your CPA review course will likely be more synched up with the exact forms and rules being tested on exam day.

How to Avoid Failing the REG CPA Exam

Sometimes it’s easier to remember what NOT to do.

People fail REG for all kinds of reasons, but there are a few in particular you should avoid:

1. Rely Solely on Your Work Experience – If you’re a tax accountant REG should be easy, right? Surprisingly, many candidates that work in tax and fail REG do so because they didn’t study REG as thoroughly as they should have. Yes, you should have a head start on REG if you work in tax, but don’t cheat the process!
2. Study Inconsistently or Only When It’s Convenient –  This is really the best advice for anyone looking to fail a CPA exam section. Don’t feel like studying? That’s cool, just put it off until tomorrow, or the next day, or the weekend! Consistency is critical to effectively studying for the CPA exam, and going even 2 or 3 days between study sessions can cause you to lost momentum and forget key concepts and rules.
3. Assume That REG Is All About Memorization – Yes, you’ll need to do LOTS of memorizing to pass REG. But make sure you understand the purpose behind every form, deduction and law. The more you can understand and remember what everything is trying to achieve, the better chance you’ll remember the correct answer on exam day.

When Should I Take REG?

If you have solid experience preparing personal and business tax returns then I suggest taking REG within your first 2 or 3 exams. Otherwise, I suggest taking REG as your first or last exam.

There’s no way around it, REG’s difficulty largely depends on much tax experience you have. If you’re a 5-year tax pro and handle 100+ personal and business returns a year then you might find REG fairly easy. If you only dabble in tax work or know just enough to prep your own tax return then this exam will be more challenging.

Given that it covers more content than AUD and BEC, there’s a huge advantage to taking your time with the material and PASSING before your 18-month window even starts. Remember, your 18-month window starts once you pass your first exam.

It might also be worth saving for later when you have more exam experience under your belt and can potentially afford multiple retakes without having any other exams to worry about. If you’re thinking of taking REG last, just make sure you have at least 6-8 months left in your testing window to save enough room for a few retakes before losing credit on your earlier exams.

Who is the REG CPA Exam Easiest For?

The REG CPA exam covers a LOT of taxation, so candidates who have worked as a tax preparer and/or did well in their taxation courses during college may find this exam easier.

That being said, taxation and business law are both fairly straightforward once you put forth the effort to learn the material, so just plan to spend a little more time mastering the materials and concepts and you’ll be fine!

Who is the REG CPA Exam Hardest For?

The REG CPA exam tends to be more difficult and take more time for candidates who’ve never prepared tax returns and/or struggled with taxation courses during college.

If you don’t have any taxation or business law experience then I suggest adding an extra 1-2 weeks of study time to fully prepare for the REG CPA exam.

Time Management for the REG CPA Exam

Effective time management is a critical to passing the CPA exam, and REG is no exception.

You only have four hours to complete all 5 testlets, so you’ll need to work through the exam at a brisk pace and not get stuck along the way, especially on the multiple-choice testlets. Trust me, not saving enough time for task-based simulations is a recipe for disaster!

Here’s how much time I recommend you spend on each testlet for REG:

[table id=60 /]

These numbers are just my guidelines. You must complete an entire testlet before moving on to the next one, but you can complete individual questions or simulations within a testlet in any order.

To manage your time effective, aim to spend as little time as possible on the questions that you’re most confident about and more time on more difficult questions. To do this, try to stick with my four-step process:

Effective REG MCQ Strategy

1) Carefully read each question to make sure you understand what’s being asked. To work as efficiently as possible, read last sentence first, then re-read the entire question from start to finish.

2) Make a first pass through each testlet with the goal of answering each question in 30 seconds or less.

The first testlet is at a moderate difficulty level, so if you really know the material then this will be more than enough time. If you’re unsure of the answer then flag it or leave it unanswered and move on to the next MCQ.

This approach lets you to make a first pass through the whole testlet in about 20 minutes, giving you plenty of time to go back to the more challenging MCQs.

3) Revisit and try to answer each flagged or unanswered question, this time within 1 minute. 

If you truly don’t know the material then there’s no sense in spinning your wheels, just make your best guess and move on. For any MCQs that you’re still a little uncertain of, make your best educated guess but flag the question to revisit again.

Plan to spend no more than 20 total minutes on this step. Assuming you have about 12 questions to work through here, this step should only take another 10-15 minutes.

4) Make a third and final pass through flagged or unanswered questions, giving yourself up to 2 minutes on each question if you need. 

This is when you need to wrap things up and make your best educated guess on any remaining questions in the testlet. Assuming you have 5-10 questions to work through this step can take another 10-20 minutes.

The above approach should allow you to complete each MCQ testlet in 35-50 minutes. You can then decide if you want to spend a few extra minutes revisiting and triple-checking a few MCQ answers or bank the time and move on to your next testlet.

Remember, if you perform well on the first MCQ testlet then the second MCQ testlet may be more difficult and you may need a little more time to complete it.

Effective REG TBS Strategy

Dominate your REG TBSs with these three simple steps:

1) Before starting the TBS testlets, note your total remaining exam time and divide it by 8. This is roughly how much time you have to complete each simulation. 

Ideally you should have at least 15 minutes for each TBS, but pan to spend a bit more time if it’s a Document Review Simulation (DRS).

2) Complete each TBS before moving on to the next one.

Unlike the MCQs, task-based simulations include several questions and calculations that revolve around an overarching scenario and fact pattern. Switching back and forth between simulations only increases the chances that you’ll mix up or forget key details.

3) As you approach your budgeted time on each TBS, assess how you’re doing and decide whether it’s worth completing or if you should make your best educated guesses and move on. 

Simulations ultimately come down to time management. The worst thing you could do on the CPA exam is spin your wheels and take time away from later simulations, so don’t be afraid to cut bait and move on if you’re starting to struggle.

Just remember to fill out the entire simulation, as there’s no penalty for incorrect answers and you may even get partial credit!

Other CPA Exam Sections

Learn more about the other CPA exam sections here:

• AUD CPA Exam
• BEC CPA Exam
• FAR CPA Exam

Still Need a CPA Review Course?

Whether you’re just starting to prepare for REG or you already took it and failed, having the right CPA review course by your side will work wonders for your exam prep.

All of the CPA prep courses featured on this site are top notch and you can pass the CPA exam with any of them. I suggest going with the one that best fits your learning style and how you learn best. Check out which CPA review course is best for you and get to cracking on REG as soon as you can!