The CPA-Regulation exam, administered by the AICPA, is a critical component of the Certified Public Accountant certification path. It evaluates your mastery of professional ethics, business law, and federal taxation across multiple contexts. This exam tests both foundational knowledge and the ability to apply concepts to real-world scenarios. Whether you are preparing for your first attempt or a retake, this page provides a clear roadmap of what to study and how to approach your preparation efficiently.
Use this topic map to guide your study for AICPA CPA-Regulation (CPA Regulation) within the Certified Public Accountant path.
The CPA-Regulation exam uses multiple question types to assess both conceptual understanding and practical judgment. Each format targets specific cognitive levels, from recall to analysis and application in client situations.
Questions progress in difficulty, moving from straightforward rule application to complex scenarios that mirror advisory and compliance work you will encounter as a Certified Public Accountant.
An effective study plan breaks the five content areas into manageable weekly segments, balances conceptual review with question practice, and includes timed assessments to build confidence. Allocate more time to areas where you have less professional experience or weaker foundational knowledge.
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Federal taxation topics (Areas III, IV, and V) collectively represent the largest portion of the exam, reflecting the tax compliance and planning focus of the Regulation section. However, Area I (Ethics and Professional Responsibilities) and Area II (Business Law) are also heavily tested and essential for passing. Allocate study time proportionally, but do not neglect any area, as questions are distributed across all five domains.
Ethics and professional responsibility rules govern how you advise clients on tax matters and prepare returns, making Area I foundational to all other topics. Business law (Area II) underpins entity selection and structure decisions that drive tax planning in Areas IV and V. Understanding these connections helps you recognize when a tax strategy may create compliance or ethical concerns, which the exam tests through scenario-based questions.
Candidates often rush through scenario questions without fully reading all facts, leading to incorrect analysis. Misunderstanding the interplay between individual and entity-level taxation (Areas IV and V) is another frequent error. Additionally, overlooking procedural requirements in Area I, such as engagement letter requirements or tax return filing deadlines, costs points. Slow down on scenario items, map facts to rules systematically, and review procedural details in your final study week.
Focus on review and pacing rather than learning new material. Complete one full-length timed practice test early in the week, review all explanations, and identify your weakest areas. Spend the remaining days drilling those weak topics with targeted questions and flashcards. On the final day, review ethics rules and common procedural pitfalls, then rest. Avoid cramming new content; confidence comes from reinforcing what you already know.
While hands-on experience is valuable, it is not required to pass. The exam tests conceptual knowledge and applied reasoning that can be developed through study materials and practice questions. If you lack professional tax experience, prioritize scenario-based questions and simulations to build practical judgment. Focus on understanding the "why" behind rules, not just memorizing them, so you can apply concepts to unfamiliar situations on test day.
Tom and Joan Moore, both CPAs, filed a joint 1994 federal income tax return showing $70,000 in taxable income. During 1994, Tom's daughter Laura, age 16, resided with Tom. Laura had no income of her own and was Tom's dependent.
Determine the amount of income or loss, if any that should be included on page one of the Moores' 1994 Form 1040.
In 1992, Joan received an acre of land as an inter-vivos gift from her grandfather. At the time of the gift, the land had a fair market value of $50,000. The grandfather's adjusted basis was $60,000. Joan sold the land in 1994 to an unrelated third party for $56,000.
'A' is correct. $0. Property received by gift has two bases: one for computing gain and another for computing loss. Joan's basis for gain is the grandfather's adjusted basis ($60,000). Using this basis for gain, Joan has a loss of: $56,000 - $60,000 = ($4,000 loss). Joan's basis for loss is the fair market value of the property on the date of the gift ($50,000). Using this basis for loss, Joan has a gain of: $56,000 - $50,000 = $6,000 gain. In this unusual situation, Joan has neither a gain nor a loss, although the transaction must be reported.
Starr, a self-employed individual, purchased a piece of equipment for use in Starr's business. The costs associated with the acquisition of the equipment were:
What is the depreciable basis of the equipment?
Choice 'd' is correct. The rules for depreciable basis in tax are generally the same as the GAAP rules for capitalizing an asset. The depreciable basis is the cost associated with the purchase of the asset and with getting the asset ready for its intended use. Further improvements are also capitalized, and the basis is reduced for any accumulated depreciation. In this case, the cost of obtaining the equipment and getting the equipment ready for its intended use includes all the items shown above, as follows:
Choice 'a' is incorrect. The costs of delivery charges, installation, and sales tax are all part of the cost of obtaining the asset and getting the asset ready for its intended use. All of these charges are included in the depreciable basis of the equipment.
Choice 'b' is incorrect. The costs of delivery charges and installation are both part of the cost of obtaining the asset and getting the asset ready for its intended use. These charges are included in the depreciable basis of the equipment.
Choice 'c' is incorrect. The cost of installation is part of the cost getting the asset ready for its intended use. This charge is included in the depreciable basis of the equipment.
Which of the following is subject to the Uniform Capitalization Rules of Code Sec. 263A?
Choice 'd' is correct. Uniform capitalization rules apply to the following: (1) real or tangible personal property produced by the taxpayer for use in his or her trade or business; (2) real or tangible personal property produced by the taxpayer for sale to his or her customers; and (3) real or tangible personal property acquired by the taxpayer for resale, provided the taxpayer's annual average gross receipts for the preceding three years exceeds $10,000,000. Warehousing costs incurred by a manufacturing company (making inventory for sale to its customers) are subject to the Uniform Capitalization Rules.
Further, they are the only item on the list that is real or tangible personal property. In this case, the inventory is not acquired for resale (it is produced by the taxpayer for sale to his or her customers), so the fact that the annual sales are $12,000,000 does not matter in this case. The sales could have been less than $10,000,000 annually, and the Uniform Capitalization Rules would still have applied.
Choices 'a', 'b', and 'c' are incorrect, based on the above discussion.
Elm Corp. is an accrual-basis calendar-year C corporation with 100,000 shares of voting common stock issued and outstanding as of December 28, 1996. On Friday, December 29, 1996, Hall surrendered 2,000 shares of Elm stock to Elm in exchange for $33,000 cash. Hall had no direct or indirect interest in Elm after the stock surrender. Additional information follows:
What amount of income did Hall recognize from the stock surrender?
Choice 'd' is correct. $17,000 capital gain.
Amount realized:
Choices 'a' and 'b' are incorrect. Dividends are distributions of earnings. These proceeds are from the sale of stock.
Choice 'c' is incorrect, per above. Accumulated earnings and profits do not effect the gain calculation, they only affect the taxability of dividends paid to shareholders.
An individual had the following capital gains and losses for the year:
What will be the net gain (loss) reported by the individual and at what applicable tax rate(s)?
Choice 'a' is correct. Specific netting procedures for capital gains and losses are outlined in the Internal Revenue Code for non-corporate taxpayers.
Gains and losses are netted within each tax rate group (e.g., the 15% rate group). The facts of this question have already performed this step for us.
Short-term Capital Gains and Losses
1. If there are any short-term capital losses (this includes any short-term capital loss carryovers), they are first offset against any short-term gains that would be taxable at the ordinary income rates.
2. Any remaining short-term capital loss is used to offset any long-term capital gains from the 28% grate group (e.g., collectibles).
3. Any remaining short-term capital loss is then used to offset any long-term gains from the 25% group (e.g., un-recaptured Section 1250 gains).
4. Any remaining short-term capital loss is used to offset any long-term capital gains applicable at the lower (e.g., 15%) tax rate.
Long-term Capital Gains and Losses
1. If there are any long-term capital losses (this includes any long-term capital loss carryovers) from the 28% rate group, they are first offset against any net gains from the 25% rate group and then against net gains from the 15% rate group.
2. If there are any long-term capital losses (this includes any long-term capital loss carryovers) from the 15% rate group, they are offset first against any net gains from the 28% rate group and then against net gains from the 25% rate group.
In this case, we are given net short-term capital losses of $70,000 to start with. Following the rules above, this first goes to offset any short-term gains at the ordinary income rates, but there are none in the facts. So, the next step is to offset the losses against any 28% rate gain long-term capital gains. The facts provide that there is $10,000 in gains from collectibles (taxable at the 28% rate). The remaining short-term loss ($60,000) is next used to offset the long-term capital gains at the 25% rate. The facts give us un-recaptured Section 1250 gains of $56,000 (taxed at the 25% tax rate). The remaining short-term capital loss is $4,000 ($70,000 - $10,000 - $56,000 = $4,000). The balance of the short-term capital losses is finally used to offset any capital gains taxed at the 15% tax rate, which the facts give us as $20,000. Therefore, after the $4,000 remaining short-term capital loss is applied to offset the $20,000 long-term capital gain taxed at the 15% tax rate, there is an amount of $16,000 remaining of long-term capital losses to be taxed at the 15% tax rate.
Choices 'b', 'c', and 'd' are incorrect, per the ordering rules discussed above.
Supplemental Questions
