CPA®

CPA REG Practice Exam 2

72 free questions · No sign-up required to browse

Practice exam for the CPA Regulation (REG) section, aligned with 2026 AICPA Blueprints. Covers Ethics, Business Law, and Federal Taxation of Property, Individuals, and Entities.

72

Questions

Hard

Difficulty

75%

Pass mark

Topics covered

Browse all topics →

Area I: Ethics & Tax Procedures Area I: Ethics & Tax Procedures Area I: Ethics & Tax Procedures Area I: Ethics & Tax Procedures Area I: Ethics & Tax Procedures Area I: Ethics & Tax Procedures Area I: Ethics & Tax Procedures Area I: Ethics & Tax Procedures Area I: Ethics & Tax Procedures Area I: Ethics & Tax Procedures Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area II: Business Law Area III: Property Transactions Area III: Property Transactions Area III: Property Transactions Area III: Property Transactions Area III: Property Transactions Area III: Property Transactions Area III: Property Transactions Area III: Property Transactions Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area IV: Individual Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation Area V: Entity Taxation

Sample questions

Q01Hard1 mark

A CPA is representing a client in an IRS examination regarding a complex tax shelter transaction. The CPA discovers that the client had omitted a significant amount of income related to the transaction on the filed return. Under Treasury Department Circular No. 230, which of the following actions must the CPA take?

View question with guidance →

Q02Hard1 mark

A tax return preparer is facing a penalty for an understatement of tax liability on a client's return. The understatement resulted from a position that did not have substantial authority but had a reasonable basis. The position was NOT disclosed on the return. Which of the following statements is correct regarding the preparer's liability under IRC §6694?

View question with guidance →

Q03Hard1 mark

Taxpayer L received a Statutory Notice of Deficiency (90-day letter) from the IRS regarding a tax dispute of $75,000. L wishes to contest the liability in court but does not have the funds to pay the tax in advance. Which court must L petition?

View question with guidance →

Q04Hard1 mark

A CPA is sued for common law negligence by a third party who relied on the CPA's audit report. The jurisdiction follows the 'Ultramares' doctrine. Under this doctrine, the CPA will generally be liable to the third party only if:

View question with guidance →

Q05Hard1 mark

Which of the following communications between a CPA and a client would generally be protected by the federally authorized tax practitioner privilege under IRC §7525?

View question with guidance →

Ready to Practice the full exam?

All 72 questions with worked answers, mark schemes, and AI tutoring.

Sign up free Take the exam

All questions (72)

Free to browse · no sign-up required

Q01A CPA is representing a client in an IRS examination regarding a complex tax shelter transaction. The CPA discovers t...Hard Q02A tax return preparer is facing a penalty for an understatement of tax liability on a client's return. The understate...Hard Q03Taxpayer L received a Statutory Notice of Deficiency (90-day letter) from the IRS regarding a tax dispute of $75,000....Hard Q04A CPA is sued for common law negligence by a third party who relied on the CPA's audit report. The jurisdiction follo...Hard Q05Which of the following communications between a CPA and a client would generally be protected by the federally author...Hard Q06A taxpayer filed their Year 1 tax return on March 15, Year 2. The return reported gross income of $100,000 and tax li...Hard Q07Under the Uniform Accountancy Act (UAA), which of the following is a ground for a State Board of Accountancy to revok...Hard Q08P, a principal, engaged A as an agent to buy 100 acres of land. P instructed A to keep P's identity secret. A entered...Hard Q09On June 1, Buyer sent a purchase order to Seller for 1,000 widgets at $10 each. The purchase order stated 'delivery b...Hard Q10Debtor D has filed for Chapter 7 bankruptcy. Which of the following debts is most likely to be discharged?Hard Q11Lender A lent Money to Debtor and perfected a security interest in Debtor's equipment on February 1. Lender B lent mo...Hard Q12Under the Foreign Corrupt Practices Act (FCPA), which of the following payments is most likely prohibited?Hard Q13Which of the following business entities generally provides all of its owners with limited liability while allowing t...Hard Q14Under the Revised Model Business Corporation Act, which of the following actions generally requires shareholder appro...Hard Q15A taxpayer purchased a machine for use in their business for $20,000. They paid $1,000 for shipping and $2,000 for in...Hard Q16In Year 1, J purchased stock for $10,000. In Year 3, J gave the stock to K when the fair market value (FMV) was $8,00...Hard Q17Company X purchased 5-year MACRS property for $200,000 and placed it in service on November 15 of the current year. T...Hard Q18A taxpayer sold a building used in their business for $500,000. The building was purchased for $400,000. Total deprec...Hard Q19Which of the following items is EXCLUDED from gross income for federal income tax purposes?Hard Q20Taxpayer A, a single individual, has Adjusted Gross Income (AGI) of $150,000. A actively participates in a rental rea...Hard Q21In Year 1, Taxpayer T had a net short-term capital loss of $2,000 and a net long-term capital loss of $4,000. T had n...Hard Q22Which of the following is a 'refundable' tax credit?Hard Q23Corporation C had book income of $500,000. Included in book income was $10,000 of municipal bond interest. C paid $5,...Hard Q24S Corporation Status: Which of the following shareholders would cause a corporation to be INELIGIBLE to make an S ele...Hard Q25Partner A contributed property with a basis of $10,000 and a fair market value (FMV) of $20,000 to the AB Partnership...Hard Q26A C Corporation owns 30% of the voting stock of a domestic corporation. The C Corporation received $10,000 in dividen...Hard Q27Under the Uniform Commercial Code (UCC) Sales Article, which of the following warranties is created by an express aff...Hard Q28A taxpayer had the following income in the current year: Salary $50,000; Partnership Income (active) $10,000; Interes...Hard Q29Which of the following acts by a CPA would most likely result in the assessment of a penalty for 'willful or reckless...Hard Q30Under the Statute of Frauds, which of the following contracts must be in writing to be enforceable?Hard Q31A taxpayer holds a 50% interest in an S Corporation. At the beginning of the year, their stock basis was $10,000. Dur...Hard Q32Which of the following is a requirement for a security interest to 'attach' under UCC Article 9?Hard Q33A taxpayer operates a consulting business as a sole proprietorship. In the current year, the business had net income ...Hard Q34Which of the following creates a 'temporary difference' between book income and tax income?Hard Q35Under the Revised Uniform Partnership Act (RUPA), absent an agreement to the contrary, how are profits and losses sha...Hard Q36Taxpayer B, a single individual, died on January 15, Year 1. The executor of B's estate elects a fiscal year ending O...Hard Q37Which of the following is a requirement for a payment to be classified as alimony for a divorce agreement executed in...Hard Q38A taxpayer exchanged a business truck (Adjusted Basis $10,000, FMV $15,000) for another business truck (FMV $15,000)....Hard Q39Which of the following is a primary authority for tax purposes?Hard Q40Under the Affordable Care Act (ACA), an Applicable Large Employer (ALE) may be subject to a penalty if it fails to of...Hard Q41A C Corporation had a net capital loss of $10,000 in Year 4. It had reported net capital gains of $2,000 in Year 1, $...Hard Q42Which of the following is a 'separately stated item' on a Partnership Schedule K-1?Hard Q43Under the Uniform Capitalization Rules (UNICAP) of IRC §263A, which of the following costs must be capitalized into i...Hard Q44A taxpayer received a gift of $15,000 cash from a friend and inherited $50,000 cash from an aunt in the current year....Hard Q45Which of the following is a requirement for a valid contract under common law?Hard Q46A taxpayer is a 10% partner in a partnership. The partnership incurred a $100,000 ordinary loss for the year. The tax...Hard Q47Which of the following is a characteristic of a 'Section 1231 asset'?Hard Q48A taxpayer had the following in the current year: Wages $40,000; Net Short-Term Capital Gain $2,000; Net Long-Term Ca...Hard Q49Under Circular 230, a practitioner may charge a contingent fee in which of the following situations?Hard Q50Which of the following is a requirement for a 'Qualified Subchapter S Subsidiary' (QSub)?Hard Q51A taxpayer purchased a $10,000 machine for business use. They elected to expense $6,000 under Section 179. What is th...Hard Q52Which of the following is a 'void' contract?Hard Q53A taxpayer had $50,000 of wages and $3,000 of gambling winnings. They had $4,000 of gambling losses. They itemize ded...Hard Q54Which of the following entities reports its income on Form 1065?Hard Q55Under the UCC Secured Transactions Article (Article 9), which of the following will perfect a security interest in a ...Hard Q56A C Corporation distributes land to a shareholder as a dividend. The land has an adjusted basis of $10,000 and a fair...Hard Q57Which of the following is deductible as a medical expense on Schedule A (subject to the 7.5% AGI floor)?Hard Q58A partner in a partnership receives a guaranteed payment of $10,000 for services rendered. The partnership has $50,00...Hard Q59Which of the following defenses is available to a surety to avoid liability on a debt?Hard Q60A taxpayer sold their principal residence for $600,000. They purchased it 5 years ago for $200,000 and have lived in ...Hard Q61Which of the following is an 'above-the-line' deduction (Adjustment to Income) for an individual taxpayer?Hard Q62In a liquidating distribution of a partnership, Partner P receives cash of $10,000 and inventory with a basis to the ...Hard Q63Which of the following organizations must file an annual information return (Form 990) with the IRS?Hard Q64Under the Sales Article of the UCC, the warranty of title:Hard Q65Taxpayer M, age 50, withdrew $10,000 from a traditional IRA in the current year to pay for unreimbursed medical expen...Hard Q66A corporation has a $50,000 Net Operating Loss (NOL) in the current year (Year 5). It had taxable income of $20,000 i...Hard Q67Which of the following acts is most likely to cause a piercing of the corporate veil, holding shareholders personally...Hard Q68A taxpayer is a 'Specified Service Trade or Business' (SSTB) with taxable income of $500,000 (Married Filing Jointly)...Hard Q69Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a Chapter 7 filing may be dismissed or co...Hard Q70A taxpayer purchased a bond for $900 (face value $1,000) in the secondary market. The bond has $100 of market discoun...Hard Q71Which of the following creates 'nexus' for state income tax purposes under Public Law 86-272?Hard Q72A taxpayer operates an illegal drug trafficking business. Which of the following expenses are deductible for tax purp...Hard