REG Section: Complete Study Guide for 2025-2026

The Regulation (REG) section tests federal taxation, business law, and professional ethics. With historically moderate difficulty levels, it's often recommended early in a candidate's journey - but don't underestimate the volume of content.

REG at a Glance

Exam Structure

REG consists of 5 testlets:

Scoring Breakdown:

• MCQs: 50% of total score
• TBS: 50% of total score

Content Areas

Area 1: Ethics, Professional Responsibilities & Federal Tax Procedures (10-20%)

Foundational requirements for tax practice:

• Circular 230 - Treasury regulations for tax practitioners
• Tax return preparer penalties
• IRS audit procedures and appeals
• Privilege and confidentiality
• Taxpayer rights and responsibilities

Pro tip: Circular 230 is frequently emphasized. Know the difference between "must," "should," and "may" provisions.

Area 2: Business Law (15-25%)

Core legal concepts:

• Contracts - Formation, performance, breach, remedies
• Debtor-creditor relationships - Bankruptcy, secured transactions
• Agency - Authority, liability, termination
• Business structure law - Partnerships, corporations, LLCs
• Federal regulations - Employment law, securities (basic)

Pro tip: Business law is conceptual. Focus on understanding principles rather than memorizing specific cases.

Area 3: Federal Taxation of Property Transactions (5-15%)

How property is taxed:

• Basis calculations - Original, adjusted, carryover, stepped-up
• Gains and losses - Recognition, characterization, deferral
• Like-kind exchanges - Section 1031 requirements
• Installment sales
• Depreciation recapture - Section 1245, 1250

Pro tip: Basis questions appear frequently. Master the formulas for calculating basis in all scenarios.

Area 4: Federal Taxation of Individuals (22-32%)

Form 1040 and individual tax:

• Gross income - What's included, what's excluded
• Deductions - Above-the-line, itemized, standard
• Credits - Child tax credit, education credits, earned income credit
• Filing status and exemptions
• Alternative minimum tax (AMT)
• Self-employment tax

Pro tip: Print a blank Form 1040 and reference it while studying. Visualizing where items go helps retention.

Area 5: Federal Taxation of Entities (23-33%)

This is the largest content area:

C Corporations:

• Formation and basis
• Operating rules
• Distributions and dividends
• Accumulated earnings tax

S Corporations:

• Election requirements
• Shareholder basis
• Pass-through taxation
• Built-in gains tax

Partnerships:

• Formation and basis
• Partner's distributive share
• Distributions
• Special allocations

Tax-Exempt Organizations:

• Qualification requirements
• Unrelated business income
• Private foundations

Pro tip: Entity taxation is 28-38% of your exam. Spend proportional study time here, especially on S corps and partnerships.

2025-2026 Tax Law Updates

OBBBA Provisions (Effective July 2026)

The One Big Beautiful Bill Act (OBBBA) will be incorporated into REG and TCP starting July 1, 2026:

• Old provisions expiring in 2025 remain testable through June 30, 2026
• New provisions effective 2024-2025 appear on exams starting July 1, 2026

Strategy: If you're taking REG before July 2026, you won't need to study OBBBA changes. If taking after, ensure your review materials are updated.

Time Management Strategy

Study Strategy by Phase

Phase 1: Foundation (Weeks 1-3)

Build tax fundamentals:

1. Start with individual taxation - It's most intuitive and builds foundation
2. Print Form 1040 - Reference it constantly
3. Learn tax formula flow - Gross income → AGI → Taxable income → Tax liability
4. Complete 30-40 MCQs per topic

Phase 2: Entity Focus (Weeks 4-6)

Tackle the largest content area:

1. Master basis calculations - They appear in every entity type
2. Create comparison charts - C corp vs S corp vs Partnership
3. Focus on formation and liquidation - High-value topics
4. Practice entity-specific TBS

Phase 3: Business Law & Review (Weeks 7-8)

Round out your knowledge:

1. Dedicate time to business law - Don't skip it for more tax
2. Review Circular 230 thoroughly
3. Take full practice exams
4. Focus on weak areas identified in practice

Must-Know Formulas

Individual Tax Formula

Gross Income
- Adjustments (Above-the-line deductions)
= Adjusted Gross Income (AGI)
- Greater of: Standard Deduction OR Itemized Deductions
= Taxable Income
× Tax Rate
= Tax Liability
- Credits
+ Other Taxes (SE tax, AMT)
= Total Tax
- Payments/Withholding
= Tax Due or Refund

Partnership Basis

Initial Basis (cash + FMV of property contributed)
+ Share of income
+ Share of tax-exempt income
+ Increase in share of liabilities
- Distributions received
- Share of losses
- Share of nondeductible expenses
- Decrease in share of liabilities
= Adjusted Basis

S Corporation Shareholder Basis

Initial Basis
+ Share of income
+ Share of tax-exempt income
- Distributions
- Share of losses (limited to basis)
- Share of nondeductible expenses
= Adjusted Basis

Note: S corp basis does NOT include share of liabilities (unlike partnerships).

Common Mistakes to Avoid

Mistake 1: Neglecting Business Law

Business law is 10-20% of the exam. Candidates who skip it miss high-yield opportunities on conceptual questions.

Mistake 2: Confusing Entity Rules

S corps, partnerships, and C corps have different rules for:

• Basis calculations
• Loss limitations
• Distribution taxation

Create comparison charts to keep them straight.

Mistake 3: Not Memorizing Limitations

Know the dollar thresholds:

• Section 179 limits
• Charitable contribution limits by entity type
• NOL carryforward rules
• Passive activity loss limits

Mistake 4: Ignoring Ethics

Circular 230 questions are straightforward if you've studied. Don't miss these high-yield opportunities.

High-Yield Topics

Based on exam feedback, prioritize:

1. Basis calculations (all entity types)
2. Individual deductions (itemized vs. standard, limits)
3. S corporation taxation (eligibility, basis, AAA)
4. Partnership distributions (cash and property)
5. Like-kind exchanges (Section 1031)
6. Depreciation and recapture
7. Circular 230 (practitioner responsibilities)
8. Contract formation and breach

Entity Comparison Quick Reference

Practical Study Tips

1. Master basis calculations thoroughly. Basis is fundamental to REG and appears across multiple topics - know it cold.

2. Create flashcards for tax thresholds and limits. These specific numbers are frequently tested and worth memorizing.

3. Don't underestimate business law. While taxation dominates the exam, business law questions can be point-savers if prepared.

4. Visualize tax form flow while studying. Understanding how items flow through Form 1040 helps with application questions.

5. Dedicate significant time to entity taxation. It's a major content area that requires understanding the differences between entity types.

REG and TCP Synergy

If you choose TCP (Tax Compliance and Planning) as your discipline section:

• There's significant content overlap with REG
• Consider taking them close together
• TCP goes deeper into planning and compliance

Ready to Start?

REG rewards methodical study of tax rules and formulas. Master basis calculations, understand entity taxation differences, and don't neglect business law or ethics.

With consistent effort and strategic focus, REG is achievable. Build your study plan and get started.