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CPA Exam — Taxation and Regulation (REG) Exam Cheat Sheet (2026)
A free, printable CPA Exam — Taxation and Regulation (REG) exam cheat sheet: the 89 highest-yield points to know, grouped into 5 sections that follow the exam's content areas, each section with its published weight.
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- The real CPA Exam — Taxation and Regulation (REG) exam: 240 minutes.
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- 112 free CPA Exam — Taxation and Regulation (REG) practice questions on the same material, every one explained.
- Last updated: September 2026.
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Area I: Ethics, Professional Responsibilities and Federal Tax Procedures
10–20% of the exam- Client's omission
- A practitioner who learns that a client has not complied with the tax law, or made an error or omission on a return, must promptly advise the client of it and of its consequences; there is no duty to report the client to the IRS.· 31 CFR 10.21
- Contingent fees
- Generally barred, but allowed for services in an IRS examination of an original return, an amended return or refund claim filed within 120 days of written notice of an exam, claims solely for interest or penalties, and judicial proceedings.· 31 CFR 10.27(b)
- Client records
- Records the client needs to meet federal tax obligations must be returned promptly on request, even in a fee dispute; copies may be kept. Where state law allows retention in a fee dispute, only records that must be attached to the return must be returned.· 31 CFR 10.28(a)
- Relying on client information
- A practitioner may rely in good faith on client information but may not ignore implications and must make reasonable inquiries when information looks incorrect, inconsistent or incomplete.· 31 CFR 10.34(d)
- Who is a preparer
- Anyone who prepares for compensation all or a substantial portion of a return or refund claim; typists, employees preparing their employer's return, and fiduciaries are excluded.· IRC 7701(a)(36)
- State board authority
- After notice and hearing, the board may revoke, suspend or refuse to renew a license, reprimand or censure, limit practice, fine, or impose probation, for grounds such as fraud, gross negligence, felony conviction, or discipline elsewhere.· Uniform Accountancy Act (9th ed.) section 10
- Circular 230 sanctions
- The IRS may censure (a public reprimand), suspend or disbar a practitioner, and may impose a monetary penalty capped at the gross income derived from the conduct.· 31 CFR 10.50
- Preparer penalty, unreasonable position
- The greater of $1,000 or 50 percent of the income from the return when an understatement stems from a position without substantial authority (or, if disclosed, without a reasonable basis) that the preparer knew or should have known of.· IRC 6694(a)
- Preparer penalty, willful or reckless
- The greater of $5,000 or 75 percent of the income from the return.· IRC 6694(b)
- Disclosure of return information
- Knowingly or recklessly disclosing or misusing return information is a misdemeanor, and a civil penalty applies as well.· IRC 7216(a); IRC 6713
- Tax Court petition
- The taxpayer has 90 days after a notice of deficiency is mailed (150 if addressed outside the U.S.) to petition the Tax Court; assessment is barred meanwhile.· IRC 6213(a)
- Small tax case
- If the amount in dispute for a year does not exceed $50,000, the taxpayer may elect small case procedures; decisions cannot be appealed and are not precedent.· IRC 7463
- Assessment period
- Generally 3 years after filing (an early return is treated as filed on the due date); 6 years if gross income omitted exceeds 25 percent of the gross income stated; unlimited for fraud or no return.· IRC 6501(a), (b)(1), (c), (e)
- Refund claims
- Due within 3 years of filing or 2 years of payment, whichever is later.· IRC 6511(a)
- Authority and disclosure
- Regulations interpret the Code; revenue rulings are published IRS positions; a private letter ruling binds the IRS only for the requester and is not precedent. Positions contrary to a regulation are disclosed on Form 8275-R, other positions on Form 8275.· IRS, Understanding IRS Guidance; Instructions for Form 8275
- Accuracy-related penalty
- 20 percent of the underpayment attributable to negligence or a substantial understatement; for individuals, an understatement is substantial if it exceeds the greater of 10 percent of the correct tax or $5,000 (5 percent if a QBI deduction is claimed).· IRC 6662(a), (d)(1)
- Failure to file and pay
- 5 percent per month (maximum 25 percent) for late filing and 0.5 percent per month for late payment; the filing addition is reduced by the payment addition for months both apply. Civil fraud carries 75 percent.· IRC 6651(a), (c)(1); IRC 6663
- Practitioner privilege
- Tax advice from a federally authorized practitioner gets attorney-client confidentiality, but only in noncriminal matters before the IRS and in federal court, and not for written tax-shelter promotion.· IRC 7525
- No general accountant privilege
- Federal law recognizes no confidential accountant-client privilege, and auditors' tax accrual workpapers have no work-product immunity from an IRS summons.· Couch v. United States, 409 U.S. 322 (1973); United States v. Arthur Young & Co., 465 U.S. 805 (1984)
- FBAR
- A U.S. person with foreign financial accounts whose aggregate value exceeded $10,000 at any time in the year files FinCEN Form 114 electronically, due April 15 with an automatic extension to October 15.· IRS FBAR guidance (Bank Secrecy Act)
Area II: Business Law
15–25% of the exam- Apparent authority
- Arises from the principal's manifestations to a third party, such as giving someone a title that normally carries a power; limits the third party does not know about do not defeat it.· Restatement (Third) of Agency, as summarized in LII Wex, 'apparent authority'
- Undisclosed principal
- An undisclosed principal is bound by the agent's authorized contracts; the third party may hold the agent or, once it discovers the principal, the principal.· LII Wex, 'undisclosed principal'
- Ratification
- A principal who, knowing the facts, accepts the benefits of an unauthorized contract ratifies it by conduct and is bound as if it had authorized it.· LII Wex, 'ratify'
- Respondeat superior
- An employer is liable for an employee's torts within the scope of employment; a minor detour stays within scope, a frolic for the employee's own purposes does not. Independent contractors are generally outside the doctrine.· LII Wex, 'respondeat superior'; 'frolic and detour'
- Firm offer
- A merchant's signed written offer to buy or sell goods that assures it will be held open is irrevocable without consideration for the stated time, up to three months.· UCC 2-205
- Battle of the forms
- A definite acceptance with additional terms still forms a contract; between merchants the new terms join the contract unless the offer limits acceptance to its terms, they materially alter it, or the offeror objects.· UCC 2-207
- Statute of frauds and modification
- Sales of goods of $500 or more need a writing signed by the party to be charged, but a merchant's confirmation binds a recipient who does not object within 10 days. A modification of a sales contract needs no consideration.· UCC 2-201; UCC 2-209(1)
- Mailbox rule
- An acceptance by an invited medium is effective when it leaves the offeree's possession, even if it never arrives; an acceptance under an option contract is effective only on receipt.· Restatement (Second) of Contracts section 63
- Risk of loss and remedies
- Absent shipment or a bailee, risk passes on the buyer's receipt if the seller is a merchant. A buyer who covers recovers cover price minus contract price plus incidental and consequential damages, less expenses saved.· UCC 2-509(3); UCC 2-712
- Attachment
- Requires value given, the debtor's rights in the collateral, and a signed security agreement describing the collateral (or the secured party's possession or control).· UCC 9-203(b)
- Automatic perfection
- A purchase-money security interest in consumer goods is perfected on attachment without filing, except for goods under certificate-of-title laws.· UCC 9-309(1)
- Priority
- Perfected interests rank by the earlier of filing or perfection; a buyer in ordinary course takes free of a security interest created by its seller even if perfected and known.· UCC 9-322(a); UCC 9-320(a)
- Preferences and fraudulent transfers
- A trustee may recover transfers on old debts made while insolvent within 90 days before filing (one year for insiders) that let the creditor get more than in Chapter 7; fraudulent transfers reach back 2 years.· 11 U.S.C. 547(b); 11 U.S.C. 548(a)
- Discharge exceptions
- Domestic support obligations, debts for willful and malicious injury, most student loans, and taxes for which no return was filed survive an individual's discharge.· 11 U.S.C. 523(a)
- Worker classification
- The IRS weighs behavioral control, financial control and the type of relationship; control over how the work is done points to an employee.· IRS, Independent contractor or employee?
- Trust fund recovery penalty
- A responsible person who willfully fails to pay over withheld taxes is personally liable for 100 percent of the unpaid amount.· IRC 6672(a)
- Applicable large employer
- An employer averaging at least 50 full-time employees, including full-time equivalents (part-time hours divided by 120 each month), in the prior year; full-time means at least 30 hours a week.· IRC 4980H(c)(2); IRS ALE guidance
- FCPA
- Bribing foreign officials to obtain or retain business is prohibited; facilitating payments for routine governmental action, such as processing visas, are excepted; issuers must also keep accurate books and adequate internal controls.· 15 U.S.C. 78dd-1; 15 U.S.C. 78m(b)(2)
- Partners and directors
- General partners are jointly and severally liable, but a newly admitted partner is not personally liable for earlier obligations; profits are shared equally by default. Directors acting in good faith on an informed basis are protected by the business judgment rule.· UPA (1997) sections 306, 401(b); LII Wex, 'business judgment rule'
Area III: Federal Taxation of Property Transactions
5–15% of the exam- Cost basis
- Basis is cost, including sales tax on the purchase and amounts paid for delivery and installation before the asset is placed in service.· IRC 1012; IRC 164(a); Treas. Reg. 1.263(a)-2(d)
- Gifts
- The donee uses the donor's basis, but for loss uses fair market value at the gift if lower; a sale between the two produces no gain or loss. The donor's holding period carries over when the donor's basis is used.· IRC 1015(a); IRC 1223(2)
- Inheritance
- Basis is fair market value at the date of death (or alternate valuation date), and the holding period is treated as long-term.· IRC 1014(a); IRC 1223(9)
- Conversion to business use
- Depreciable basis is the lesser of fair market value or adjusted basis at conversion; land is never depreciable.· Treas. Reg. 1.168(i)-4(b); Treas. Reg. 1.167(a)-2
- Wash sales
- A loss is disallowed if substantially identical stock is bought within 30 days before or after the sale; the disallowed loss is added to the new shares' basis.· IRC 1091(a), (d)
- Recovery periods
- Common classes include 5- and 7-year personal property, 27.5-year residential rental property and 39-year nonresidential real property.· IRC 168(c)
- Conventions
- Half-year is the default; mid-quarter applies to all personal property for the year if more than 40 percent of its basis is placed in service in the last three months; real property uses mid-month.· IRC 168(d)
- Section 179
- For tax years beginning in 2025, up to $2,500,000, reduced dollar-for-dollar by cost placed in service above $4,000,000, and limited to taxable income from the active conduct of a business, with a carryover. The amounts are indexed after 2025.· IRC 179(b) as amended by Pub. L. 119-21
- Bonus depreciation
- 100 percent of the adjusted basis of qualified property (generally a recovery period of 20 years or less) acquired after January 19, 2025, unless the taxpayer elects out.· IRC 168(k) as amended by Pub. L. 119-21
- Section 197 intangibles
- Goodwill, going concern value, covenants not to compete entered into with a business acquisition, franchises and trademarks are amortized ratably over 15 years from the month acquired.· IRC 197(a), (d)
- Start-up expenditures
- Deduct up to $5,000, reduced by costs over $50,000, in the year the business begins; amortize the rest over 180 months.· IRC 195(b)
- Organizational expenditures
- Same $5,000 / $50,000 / 180-month structure for a corporation's organizing costs; costs of issuing or selling stock do not qualify.· IRC 248(a); Treas. Reg. 1.248-1(b)
Area IV: Federal Taxation of Individuals
22–32% of the exam- Common exclusions
- Gifts, life insurance proceeds paid by reason of death, and interest on state or local bonds are excluded; unemployment compensation is included.· IRC 101(a); IRC 102(a); IRC 103(a); IRC 85(a)
- Damages
- Compensatory damages for personal physical injury or sickness are excluded, including the lost-wage portion; punitive damages are taxable.· IRC 104(a)(2)
- Scholarships and fringes
- Scholarships used for tuition, required fees and course materials are excluded, but not room and board; group-term life coverage above $50,000 and employee discounts above the statutory limits are taxable.· IRC 117; IRC 79(a); IRC 132(c)
- Alimony
- For divorce or separation instruments executed after 2018, alimony is neither deductible by the payer nor taxable to the recipient.· Pub. L. 115-97 sec. 11051
- Pass-through and decedent income
- Guaranteed payments and a partner's distributive share are income whether or not distributed; income received after death is income in respect of a decedent, taxed to the recipient.· IRC 702; IRC 707(c); IRC 691(a)
- Above-the-line items
- Include one-half of self-employment tax, self-employed health insurance (not for months eligible for an employer-subsidized plan), and HSA contributions.· IRC 62(a); IRC 164(f); IRC 162(l); IRC 223
- Medical and taxes
- Medical expenses are deductible above 7.5 percent of AGI. For 2025 the state and local tax cap is $40,000, reduced by 30 percent of modified AGI over $500,000 but not below $10,000.· IRC 213(a); IRC 164(b)(6)-(7)
- Home interest, gifts and casualties
- Interest on up to $750,000 of acquisition debt incurred after December 15, 2017 is deductible; cash gifts to public charities are limited to 60 percent of AGI with a 5-year carryover; personal casualty and theft losses are limited to declared disasters.· IRC 163(h)(3)(F); IRC 170(b)(1)(G); IRC 165(h)(5)
- Senior deduction
- For 2025 through 2028, $6,000 for each taxpayer aged 65 or older, reduced by 6 percent of modified AGI over $75,000 ($150,000 joint), available whether or not the taxpayer itemizes.· IRC 151(d)(5)(C); IRC 63(b)
- QBI deduction
- Generally 20 percent of qualified business income, limited to 20 percent of taxable income minus net capital gain; wage and property limits apply above an indexed threshold.· IRC 199A(a)-(b)
- Capital losses
- Individuals deduct capital losses against capital gains plus up to $3,000 ($1,500 married filing separately); the rest carries forward indefinitely with its character.· IRC 1211(b); IRC 1212(b)
- Basis limit
- A partner's share of loss is allowed only to the extent of the basis of the partnership interest at year-end; the excess carries forward.· IRC 704(d)
- Rental real estate
- An individual who actively participates may deduct up to $25,000 of rental losses against other income, reduced by 50 percent of modified AGI over $100,000.· IRC 469(i)
- Hobby and personal losses
- Hobby income is taxable, and the hobby expenses are miscellaneous itemized deductions that are not allowed. Losses on personal-use property are not deductible.· IRC 183(b); IRC 67(g); IRC 165(c)
- Filing status
- Marital status is set at year-end, and a divorced taxpayer is unmarried. A qualifying surviving spouse keeps joint rates for two years after the spouse's death if a dependent child lives at home; head of household requires an unmarried taxpayer maintaining a home for a qualifying person (a dependent parent may live elsewhere).· IRC 7703(a); IRC 2(a)-(b)
- Dependents
- A qualifying child must meet relationship, residence (more than half the year), age (under 19, or a student under 24) and support tests; there is no gross income test for a qualifying child.· IRC 152(c)
- Net investment income tax
- 3.8 percent of the lesser of net investment income or modified AGI over $250,000 (joint) or $200,000 (single); the thresholds are not indexed.· IRC 1411
- Credits
- Refundable credits, such as the earned income credit, can exceed the tax and be paid out; nonrefundable credits are limited to the tax. For 2025 the child tax credit is $2,200 per qualifying child plus $500 per other dependent.· IRC 6401(b); IRC 24(h)
- Estimated tax safe harbor
- Pay the lesser of 90 percent of current-year tax or 100 percent of prior-year tax (110 percent if prior-year AGI exceeded $150,000); no penalty if the balance due is under $1,000.· IRC 6654(d)-(e)
Area V: Federal Taxation of Entities
23–33% of the exam- Book-tax reconciliation
- Federal income tax expense, fines paid to a government and the nondeductible half of meals are added back; tax-exempt interest is subtracted. Corporations with $10 million or more of total assets file Schedule M-3.· IRC 275; IRC 162(f); IRC 274(n); Instructions for Schedule M-3
- Dividends received deduction
- 50 percent (less than 20 percent owned) or 65 percent (20 percent or more owned), limited to that percentage of taxable income unless the full deduction creates or increases an NOL.· IRC 243(a), (c); IRC 246(b)
- Losses
- Net capital losses offset only capital gains and carry back 3 and forward 5 years; NOLs from years after 2017 carry forward indefinitely, deductible up to 80 percent of taxable income.· IRC 1211(a); IRC 1212(a); IRC 172(a)
- Estimated tax
- A large corporation (taxable income of $1 million or more in any of the prior 3 years) must base installments after the first on current-year tax.· IRC 6655(d)(2), (g)(2)
- State nexus and apportionment
- Public Law 86-272 bars a state net income tax when in-state activity is limited to soliciting orders for tangible goods approved and shipped from outside; business income is apportioned by formula and nonbusiness income allocated, such as dividends to the commercial domicile.· 15 U.S.C. 381; UDITPA
- Eligibility
- A domestic corporation with no more than 100 shareholders (a family counts as one), only individuals, estates, certain trusts and exempt organizations as shareholders, no nonresident aliens, and one class of stock (voting differences are ignored).· IRC 1361(b)-(c)
- Election and termination
- An election made by the 15th day of the third month applies to the current year; otherwise the next year. Revocation needs holders of more than half the shares. Ceasing to qualify terminates the election that day; re-election generally waits five years.· IRC 1362(b), (d), (g)
- Passive income test
- The election terminates after three consecutive years with accumulated C earnings and profits and passive investment income over 25 percent of gross receipts.· IRC 1362(d)(3)
- Basis ordering
- Stock basis is increased for income, then reduced for distributions, nondeductible expenses and losses, in that order; losses beyond stock and debt basis carry forward, and income first restores reduced debt basis.· IRC 1366(d); IRC 1367; Treas. Reg. 1.1367-1(f)
- Distributions and AAA
- With no accumulated earnings and profits, distributions are tax-free up to stock basis and gain beyond it; the AAA tracks income and deductions like basis but ignores tax-exempt items.· IRC 1368(b), (e)
- Contributions
- No gain or loss on contributing property for an interest; the partner's basis and the partnership's basis in the property both equal the contributed property's adjusted basis.· IRC 721; IRC 722; IRC 723
- Guaranteed payments
- Payments for services or capital determined without regard to partnership income are deductible by the partnership and ordinary income to the partner.· IRC 707(c)
- Basis and liabilities
- Basis increases for income (including tax-exempt income) and for increases in the partner's share of liabilities, and decreases for distributions, losses and decreases in liability shares.· IRC 705; IRC 752
- Distributions
- Gain is recognized only when money exceeds basis; distributed property takes the partnership's basis, limited in a current distribution to the partner's remaining basis.· IRC 731(a); IRC 732(a)
- Tax year
- A partnership generally uses the tax year of partners owning more than 50 percent of profits and capital.· IRC 706(b)
- Default classification
- A domestic eligible entity with one owner is disregarded; with two or more members it is a partnership; either may elect corporate status, and a change generally cannot be repeated for 60 months.· Treas. Reg. 301.7701-3
- Types of exempt organizations
- Section 501(c)(3) covers charitable and educational organizations, 501(c)(4) social welfare organizations, 501(c)(6) business leagues and trade associations, and 501(c)(7) social clubs.· IRC 501(c)
- Unrelated business income
- Income from a regularly carried on business not substantially related to the exempt purpose is taxed; dividends, interest and royalties are excluded, as is a business run substantially by volunteers.· IRC 511-513
- General business credit
- Unused credit carries back one year and forward 20 years.· IRC 39(a)(1)
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