REG has the highest pass rate of the three core CPA exam sections at 63.12% cumulative for 2025 according to AICPA data. That figure leads some candidates to treat it as the straightforward section of the exam. It is not straightforward. It is simply more passable than FAR and AUD when approached correctly.
The candidates who fail REG typically fall into one of two patterns: they spend the large majority of their time on individual taxation because it feels familiar and productive, and arrive at exam day underprepared for entity taxation which carries the largest blueprint weight of any single content area. Or they treat business law as a low-priority afterthought and lose points in a content area that is genuinely one of the most accessible on the entire exam.
This guide covers the five REG content areas with their blueprint weights, the specific topics that produce the most exam difficulty, and how to build a study approach around frameworks and decision trees rather than isolated rule memorization.
Important 2026 Tax Law Update
Before building any REG study plan, candidates need to confirm which tax law their exam date will test.
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, introduces significant federal tax changes. The AICPA’s Uniform CPA Examination Blueprints for REG and TCP will be updated to reflect OBBBA provisions, but only those that fall within the existing Blueprint scope will be tested. Zell Education
If you sit for REG before July 2026, the exam tests pre-OBBBA tax law. If you sit after July 2026, you need to know the new provisions. Becker Verify the AICPA’s published testing window before beginning preparation and confirm that the review course being used has updated its REG materials to reflect the applicable law for the exam date.
Table of Contents
- REG at a Glance: Format and Blueprint Overview
- Area I: Ethics, Professional Responsibilities, and Federal Tax Procedures (10-20%)
- Area II: Business Law (15-25%)
- Area III: Federal Taxation of Property Transactions (5-15%)
- Area IV: Federal Taxation of Individuals (15-25%)
- Area V: Federal Taxation of Entities (28-38%)
- Why Decision Trees Beat Memorization in REG
- How to Allocate Study Time Across REG
- The Two Most Common REG Failure Patterns
- Key Takeaways
- FAQ
Key Takeaways
| Point | Details |
|---|---|
| Entity taxation is the largest content area | Area V (Federal Taxation of Entities) carries 28-38% of the REG blueprint, the single largest content area on the exam. |
| Business law is the most commonly skipped area | At 15-25% of the blueprint, business law is too significant to neglect and is among the most accessible content on REG. |
| Individual taxation is familiar but dense | Candidates tend to over-study individual tax relative to its blueprint weight and underinvest in entity tax. |
| Decision trees outperform memorization | REG has too many rules, thresholds, and entity-specific variations for pure memorization to hold under exam pressure. Frameworks work better. |
| OBBBA changes affect REG from July 1, 2026 | Candidates sitting after that date need to confirm their study materials reflect the updated provisions. |
| REG is passable with the right allocation | The 63% pass rate reflects candidates who align study time with blueprint weights and do not skip difficult areas. |
REG at a Glance: Format and Blueprint Overview
REG is a four-hour exam consisting of 72 MCQs across two testlets of 36 questions each, and 8 task-based simulations across three TBS testlets. MCQs and TBSs each account for 50% of the total score. A passing score of 75 is a scaled score, not a raw percentage of correct answers.
The five content areas and their 2026 blueprint weights per the AICPA REG Blueprint are as follows:
| Content Area | Blueprint Weight | Primary Focus |
|---|---|---|
| Area I: Ethics, Professional Responsibilities, and Federal Tax Procedures | 10-20% | Circular 230, tax practice standards, IRS procedures, CPA professional responsibilities |
| Area II: Business Law | 15-25% | Contracts, agency, business structures, debtor-creditor, government regulation |
| Area III: Federal Taxation of Property Transactions | 5-15% | Capital gains, like-kind exchanges, installment sales, basis calculations |
| Area IV: Federal Taxation of Individuals | 15-25% | Form 1040 income, deductions, credits, AMT, self-employment tax, estimated payments |
| Area V: Federal Taxation of Entities | 28-38% | C corporations, S corporations, partnerships, LLCs, trusts, tax-exempt organizations |
The key observation from this table: entity taxation is not one topic among many. It is the single largest content area on REG and carries nearly double the blueprint weight of individual taxation. Candidates who discover this fact late in their preparation and have allocated study time accordingly are in a strong position. Candidates who do not discover it until they receive a failing score report are in a familiar and avoidable situation.
Area I: Ethics, Professional Responsibilities, and Federal Tax Procedures (10-20%)
Area I covers the professional and procedural framework within which tax practice operates. This includes the standards and rules that govern how CPAs and tax practitioners interact with the IRS, their clients, and the broader legal system.
Circular 230 is the primary regulatory framework tested in this area. It governs the practice of tax professionals before the IRS, including who may practice, standards for written tax advice, due diligence requirements, and the types of conduct that can result in discipline or disbarment. Questions on Circular 230 are often scenario-based, presenting a specific situation and asking whether it violates a particular standard.
AICPA Statements on Standards for Tax Services (SSTS) cover the ethical obligations of CPAs in tax practice beyond the IRS-specific requirements of Circular 230. These include standards on return positions, answers to questions on returns, and the use of estimates.
Federal tax procedures include examination procedures, IRS audit types (correspondence, office, field), the statute of limitations for assessment and collection, penalties for underpayment and negligence, and the appeals process.
This area rewards candidates who study it as a structured set of rules rather than general professional ethics concepts. Many of the questions have clear right and wrong answers based on specific Circular 230 provisions, and the material is learnable at a high accuracy rate with focused preparation.
Area II: Business Law (15-25%)
Business law is the most commonly underweighted area in REG preparation and one of the most consistently underperformed. At 15-25% of the blueprint, it represents a significant portion of the exam. It is also, for most candidates, the most accessible content area: it does not require multi-step calculations, the concepts are mostly intuitive once understood, and it draws on general legal principles that apply broadly across professional life.
Contracts is the foundational business law topic, covering formation (offer, acceptance, consideration), enforceability, performance, breach, and remedies. The Uniform Commercial Code (UCC) applies to contracts for the sale of goods and differs from common law in specific ways, particularly around offer and acceptance modifications, the merchant’s firm offer rule, and the statute of frauds. Knowing when UCC applies versus common law is consistently tested.
Agency covers the relationship between principals and agents, the types of authority (actual express, actual implied, and apparent), and the liability of principals and agents to third parties. These questions are typically scenario-based and reward understanding of the underlying agency principles rather than definition recall.
Business structures covers the formation, operation, and dissolution of partnerships, LLCs, corporations, and sole proprietorships from a legal rather than tax perspective. Understanding the liability exposure of owners in each structure type and how ownership interests transfer is testable content distinct from the tax treatment of the same entities.
Debtor-creditor relationships covers secured transactions under UCC Article 9, bankruptcy (Chapter 7 liquidation and Chapter 11 reorganization), and suretyship. Secured transaction questions test the creation and perfection of security interests and priority rules between competing creditors.
Government regulation of business covers employment tax classification, the Foreign Corrupt Practices Act, and specific regulatory frameworks. These topics are lower-weight within business law but worth understanding at a basic level.
The strategic point: business law study does not require the same kind of deep analytical preparation that entity taxation does. A focused pass through the major topics with active MCQ practice typically produces strong performance in this area within a reasonable amount of study time. Candidates who skip it entirely in favor of more tax study are trading away one of the most accessible point-earning opportunities on the exam.
Area III: Federal Taxation of Property Transactions (5-15%)
Area III covers the tax consequences of buying, selling, and exchanging property. It carries the lowest blueprint weight of the five REG content areas but appears in both MCQs and simulations with enough frequency that a meaningful preparation gap here costs points.
Capital gains and losses requires candidates to understand the distinction between short-term and long-term capital treatment, how capital gains and losses net against each other, and the preferential rate treatment for long-term capital gains. The specific holding period thresholds and the netting rules across different baskets of gains and losses are both testable.
Like-kind exchanges under IRC Section 1031 is a high-frequency topic within this area. Understanding that gain is deferred (not excluded), how to calculate the recognized gain when boot is received, and how to determine the basis in the replacement property requires step-by-step calculation practice rather than conceptual understanding alone.
Basis calculations underlie most property transaction questions. Understanding how original basis is determined, adjusted for improvements and depreciation, and used to calculate realized gain or loss is foundational to this entire area.
Installment sales covers the recognition of gain over time when property is sold with payments received across multiple periods. The gross profit percentage calculation and the treatment of depreciation recapture within an installment sale are the specific mechanics tested.
Area IV: Federal Taxation of Individuals (15-25%)
Individual taxation covers the federal income tax return for individual taxpayers, broadly organized around the structure of Form 1040. Most candidates find this area the most familiar because it draws on both academic coursework and, for many, some professional experience with individual tax returns.
The familiarity, however, can produce overconfidence. Individual taxation on REG is tested at an application and analysis level that goes beyond what basic tax return preparation requires. Questions frequently present scenarios with multiple overlapping rules, phase-outs, or limitations that require careful sequential analysis rather than straightforward rule application.
Gross income covers the inclusion and exclusion rules for wages, interest, dividends, alimony (under pre-2019 agreements), business income, rental income, retirement distributions, and the various income exclusions such as gifts and inheritances, life insurance proceeds, and employer-provided benefits.
Adjusted gross income (AGI) deductions covers above-the-line deductions including student loan interest, self-employed health insurance, qualified business income (QBI), alimony paid (pre-2019 agreements), and contributions to retirement accounts.
Itemized deductions and the standard deduction covers the major itemized deductions (state and local taxes subject to the SALT cap, mortgage interest, charitable contributions, medical expenses subject to the AGI floor) and the circumstances under which itemizing produces a better result than the standard deduction.
Tax credits covers the child tax credit, earned income credit, education credits, and child and dependent care credit. Credits are frequently tested because they directly reduce tax liability dollar for dollar and have specific phase-out ranges and eligibility requirements that produce scenario-based questions.
Self-employment tax and estimated tax payments covers the calculation of self-employment tax, the above-the-line deduction for half of SE tax, and the rules for avoiding underpayment penalties through estimated tax payments.
A useful organizational framework for individual taxation is to anchor study around Form 1040 structure. Understanding which items appear where on the return and why creates a mental map that makes individual tax questions significantly more navigable under exam conditions.
Area V: Federal Taxation of Entities (28-38%)
Area V is where most REG preparation plans either succeed or fail. Entity taxation is a calculation-intensive minefield. Partnership basis alone has probably ended more REG attempts than any other single topic. Gleim Candidates who spend most of their time on individual taxation and arrive at exam day with weak entity tax preparation are structurally underprepared for the largest content area on the exam.
C corporations covers corporate formation (Section 351 nonrecognition), capital structure, dividend distributions, and corporate income tax calculations. The double taxation of C corporation income (at the corporate level and again when distributed as dividends) is a concept that appears in both MCQ and simulation contexts.
S corporations covers election requirements, shareholder basis calculations, the pass-through of income and losses, distributions, and the built-in gains tax. S corporation basis is particularly important: shareholders can deduct losses only to the extent of their basis, and understanding how basis increases (income and contributions) and decreases (distributions and losses) work is essential for answering basis questions correctly.
Partnerships is the most complex entity tax area on REG. Partnership basis calculations involve both outside basis (the partner’s basis in the partnership interest) and inside basis (the partnership’s basis in its assets). The allocation of income and loss items through Schedule K-1, the treatment of partnership distributions, and the recognition of gain or loss on liquidation all require careful step-by-step analysis. Partnership taxation appears in simulations with meaningful frequency and requires applied calculation skills that passive review does not build.
LLCs are typically treated as partnerships for tax purposes unless an election is made to be taxed as a corporation. Questions on LLC taxation test whether candidates understand the default treatment and the conditions under which it differs.
Trusts and estates covers the basic income tax treatment of grantor trusts, simple trusts, and complex trusts, as well as the taxable estate calculation and the estate tax filing threshold. This is a lower-weight topic within Area V but one that candidates frequently skip entirely.
Tax-exempt organizations covers the qualification requirements for 501(c)(3) organizations, the unrelated business income tax (UBIT), and private foundation rules. These topics appear in REG at a foundational level sufficient for MCQ questions on classification and basic compliance requirements.
Why Decision Trees Beat Memorization in REG
REG contains more specific rules, thresholds, phase-out ranges, and entity-specific variations than any other CPA exam section. The density of the content makes pure memorization an unreliable preparation strategy: there is simply too much detail for most candidates to retain under exam pressure without a structural framework to organize it.
Decision trees and logical frameworks are more durable under pressure than isolated facts because they encode the reasoning process behind the rule, not just the rule itself. When an exam question presents a scenario with facts that do not exactly match any memorized example, a candidate who has a decision tree for that topic can reason through to the correct answer. A candidate who has memorized rules without the underlying logic is more likely to misapply them.
For entity taxation specifically, a decision tree approach to partnership basis questions might look like this: Start with the partner’s initial outside basis. Add the partner’s share of income and separately stated items. Subtract distributions received. Subtract the partner’s share of losses, limited to remaining basis. Identify whether any loss carryforward exists. That sequence, applied consistently to any partnership basis question regardless of how the facts are presented, produces correct answers more reliably than memorizing individual examples.
The same framework approach applies to the Section 351 analysis for corporate formations, the like-kind exchange calculation, the built-in gains tax for S corporations, and the Circular 230 analysis for ethics questions. Building these frameworks during preparation and practicing applying them to unfamiliar scenarios is what moves REG preparation from surface-level familiarity to genuine exam-day capability.
For candidates who want structured help building these frameworks for the specific entity taxation topics that produce the most difficulty, the CPA tutoring services at Andrew Katz Tutoring include REG preparation with a specific focus on decision-tree approaches to entity tax. Candidates can also review how tutoring compares to self-study in the guide on CPA review course vs CPA tutor.
How to Allocate Study Time Across REG
Given the blueprint weights and the difficulty distribution across content areas, a practical study time allocation for REG looks like this:
| Content Area | Blueprint Weight | Suggested Study Time |
|---|---|---|
| Area I: Ethics and Tax Procedures | 10-20% | 10-15% of total hours |
| Area II: Business Law | 15-25% | 20-25% of total hours |
| Area III: Property Transactions | 5-15% | 10-12% of total hours |
| Area IV: Individual Taxation | 15-25% | 20-22% of total hours |
| Area V: Entity Taxation | 28-38% | 28-35% of total hours |
Business law receives a slightly higher allocation than its blueprint floor because it is among the most accessible point-earning areas and responds well to focused study. Candidates with no prior business law exposure should invest more time here to build the foundational framework before attempting MCQ practice.
Entity taxation receives an allocation matching its blueprint weight because its complexity requires more time per topic than any other area. Candidates with active tax backgrounds may find individual and entity taxation more familiar and can adjust the allocation accordingly, shifting time toward business law and property transactions.
The Two Most Common REG Failure Patterns
Pattern 1: Over-studying individual tax, under-studying entity tax.
This is the most common REG failure pattern. Individual taxation feels familiar and productive to study. Entity taxation feels difficult and unfamiliar. The natural result is a preparation plan that produces strong individual tax performance and weak entity tax performance, with entity tax carrying nearly double the blueprint weight of individual tax.
The fix is explicit. Before starting any REG preparation, acknowledge that Area V is the largest content area and build a study plan that allocates time proportionally to that fact, not proportionally to how comfortable each area feels.
Pattern 2: Skipping business law entirely.
At 15-25% of the blueprint, business law is a content area that affects between one in six and one in four exam questions. Candidates who skip it in favor of more tax study are voluntarily reducing their score ceiling in an area that is genuinely more accessible than partnership basis calculations or S corporation built-in gains.
Business law rewards focused, organized study. The major topic areas (contracts, agency, business structures, secured transactions, bankruptcy) each have clear rules that respond well to active MCQ practice. A candidate who dedicates three to four weeks of moderate effort to business law can achieve strong performance there. A candidate who skips it has a structural hole that the exam will find.
For candidates who want help building a REG study plan that addresses both patterns, the CPA exam tutoring services at Andrew Katz Tutoring include REG-specific preparation with personalized blueprint-based allocation guidance. Candidates can review rates and packages and schedule a consultation to discuss what a targeted REG plan would look like.
Recommended Reading
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- BAR vs ISC vs TCP: Which CPA Discipline Section Should You Choose in 2026?
- How Long Does It Take to Pass All 4 CPA Exam Sections in 2026?
- 10 Signs You Need a CPA Tutor (Not Just a Review Course)
FAQ
What is the hardest part of the REG CPA exam?
Entity taxation (Area V) is consistently the most difficult content area for most candidates. Partnership basis calculations, S corporation shareholder basis, and corporate formation rules under Section 351 require multi-step applied analysis that passive review does not build reliably. Entity tax also carries the largest blueprint weight at 28-38%, making it the area that most directly determines whether a candidate passes or fails.
How many hours should I study for REG?
Most preparation guidelines suggest 84 to 120 hours for REG depending on background. Candidates with active tax experience may need fewer hours for the tax content areas but should budget adequate time for business law regardless. Working professionals studying 8 hours per week should plan for 10 to 15 weeks of preparation.
Is business law important for REG?
Yes. Business law carries a 15-25% blueprint weight, meaning it affects between one in six and one in four exam questions. It is also among the most accessible content areas on REG for candidates who study it deliberately. Treating it as optional sacrifices a significant portion of potential score in an area that does not require complex calculations.
What tax law applies to REG in 2026?
Candidates sitting before July 1, 2026 are tested on pre-OBBBA tax law. Candidates sitting on or after July 1, 2026 will be tested on provisions of the One Big Beautiful Bill Act with 2024-2025 effective dates, including changes to individual tax rates, standard deductions, tip and overtime income treatment, and bonus depreciation rules. Verify the applicable testing window with the AICPA and confirm review course materials are updated accordingly before beginning preparation for an exam date in the second half of 2026.
Should I take REG before or after FAR?
Most candidates benefit from sitting FAR first because it is the hardest section and most preparation advisors recommend tackling it before the credit window starts. REG works well as a second or third section. Candidates with active tax backgrounds sometimes prefer sitting REG earlier while the material is fresh from daily work. Candidates who plan to choose TCP as their discipline section benefit from sitting REG and TCP in close succession to maximize content overlap.
What is the REG pass rate in 2026?
REG had a 2025 cumulative pass rate of 63.12% according to AICPA data, the highest of the three core sections. This reflects both the relative manageability of the content when studied correctly and the fact that many REG candidates have relevant professional tax experience. A 63% pass rate still means more than one in three attempts do not result in a passing score.
Looking for structured help with REG preparation, particularly entity taxation or business law? Visit the CPA tutoring services page at Andrew Katz Tutoring, review rates and packages, or browse the blog for more CPA exam strategy resources.