CPA REGULATION EXAM STUDY GUIDE 2026/2027
ACCURATE QUESTIONS WITH CORRECT DETAILED
SOLUTIONS | NEWEST VERSION
Description: This comprehensive study guide contains 200 multiple-choice questions
(MCQs) covering all major topics tested on the CPA Regulation (REG) section of the
Uniform CPA Examination. Each question includes the correct answer marked with ✅
and a detailed solution to reinforce understanding. Questions are randomized so
correct answers are not always in the same position.
Key Words: CPA Exam, REG, Regulation, Federal Taxation, Business Law, Ethics,
Individual Taxation, Entity Taxation, Property Transactions, Circular 230, Contracts,
Agency, Secured Transactions, Bankruptcy, Suretyship.
SECTION 1: ETHICS, PROFESSIONAL RESPONSIBILITIES, AND
FEDERAL TAX PROCEDURES (Questions 1–40)
1. Under Circular 230, which of the following is a required element of a written tax
advice disclaimer?
A. The advice must be signed by the client
B. The advice must include a statement that it was not intended to be used to avoid
penalties
,C. The advice must be filed with the IRS
D. The advice must be notarized
✅ Correct Answer: B
Solution: Under Circular 230 §10.37, covered opinions must include a disclaimer stating
the advice is not intended or written to be used to avoid penalties. It does not need
client signature, IRS filing, or notarization.
2. A CPA prepares a tax return for a client and discovers an error that understates
income by $10,000. The client refuses to correct it. What must the CPA do?
A. File the return as is
B. Withdraw from the engagement and notify the IRS
C. Withdraw from the engagement and consider notifying the IRS
D. Report the client to the state board
✅ Correct Answer: C
Solution: Under Circular 230 §10.21, if a client refuses to correct an error, the
practitioner must withdraw and consider whether to notify the IRS. Notification is not
mandatory but should be considered.
3. Which of the following is NOT a violation of Circular 230?
A. Charging an unconscionable fee
B. Taking a position that lacks a reasonable basis
,C. Advising a client of a position that has a realistic possibility of being sustained
D. Willfully failing to file a tax return
✅ Correct Answer: C
Solution: Advising a client of a position with a realistic possibility of being sustained is
permissible. Unconscionable fees, frivolous positions, and willful failure to file are
violations.
4. The IRS may impose a penalty on a tax return preparer for which of the
following?
A. Signing a return without reviewing it
B. Taking a position with a realistic possibility of being sustained
C. Disclosing client information with consent
D. Charging a contingent fee for a tax return
✅ Correct Answer: A
Solution: Signing a return without reviewing it violates due diligence requirements
under IRC §6694. Contingent fees are allowed for tax returns but not for original returns
in certain situations.
5. Under Circular 230, a practitioner must maintain records of a client's tax return
for:
A. 1 year
B. 3 years
, C. 5 years
D. Indefinitely
✅ Correct Answer: B
Solution: Circular 230 §10.27 requires practitioners to retain records for a minimum of 3
years after the conclusion of the engagement.
6. Which of the following is a "covered opinion" under Circular 230?
A. A verbal opinion on a tax matter
B. A written opinion on a tax shelter
C. A tax return preparation
D. A general tax newsletter
✅ Correct Answer: B
Solution: A covered opinion is a written opinion on a tax shelter or a marketed opinion.
Verbal opinions and general newsletters are not covered.
7. A CPA is asked to prepare a tax return for a client who wants to claim a
deduction the CPA believes is frivolous. What should the CPA do?
A. Claim the deduction
B. Refuse to prepare the return
C. Claim the deduction but disclose it
D. Report the client to the IRS
✅ Correct Answer: B
ACCURATE QUESTIONS WITH CORRECT DETAILED
SOLUTIONS | NEWEST VERSION
Description: This comprehensive study guide contains 200 multiple-choice questions
(MCQs) covering all major topics tested on the CPA Regulation (REG) section of the
Uniform CPA Examination. Each question includes the correct answer marked with ✅
and a detailed solution to reinforce understanding. Questions are randomized so
correct answers are not always in the same position.
Key Words: CPA Exam, REG, Regulation, Federal Taxation, Business Law, Ethics,
Individual Taxation, Entity Taxation, Property Transactions, Circular 230, Contracts,
Agency, Secured Transactions, Bankruptcy, Suretyship.
SECTION 1: ETHICS, PROFESSIONAL RESPONSIBILITIES, AND
FEDERAL TAX PROCEDURES (Questions 1–40)
1. Under Circular 230, which of the following is a required element of a written tax
advice disclaimer?
A. The advice must be signed by the client
B. The advice must include a statement that it was not intended to be used to avoid
penalties
,C. The advice must be filed with the IRS
D. The advice must be notarized
✅ Correct Answer: B
Solution: Under Circular 230 §10.37, covered opinions must include a disclaimer stating
the advice is not intended or written to be used to avoid penalties. It does not need
client signature, IRS filing, or notarization.
2. A CPA prepares a tax return for a client and discovers an error that understates
income by $10,000. The client refuses to correct it. What must the CPA do?
A. File the return as is
B. Withdraw from the engagement and notify the IRS
C. Withdraw from the engagement and consider notifying the IRS
D. Report the client to the state board
✅ Correct Answer: C
Solution: Under Circular 230 §10.21, if a client refuses to correct an error, the
practitioner must withdraw and consider whether to notify the IRS. Notification is not
mandatory but should be considered.
3. Which of the following is NOT a violation of Circular 230?
A. Charging an unconscionable fee
B. Taking a position that lacks a reasonable basis
,C. Advising a client of a position that has a realistic possibility of being sustained
D. Willfully failing to file a tax return
✅ Correct Answer: C
Solution: Advising a client of a position with a realistic possibility of being sustained is
permissible. Unconscionable fees, frivolous positions, and willful failure to file are
violations.
4. The IRS may impose a penalty on a tax return preparer for which of the
following?
A. Signing a return without reviewing it
B. Taking a position with a realistic possibility of being sustained
C. Disclosing client information with consent
D. Charging a contingent fee for a tax return
✅ Correct Answer: A
Solution: Signing a return without reviewing it violates due diligence requirements
under IRC §6694. Contingent fees are allowed for tax returns but not for original returns
in certain situations.
5. Under Circular 230, a practitioner must maintain records of a client's tax return
for:
A. 1 year
B. 3 years
, C. 5 years
D. Indefinitely
✅ Correct Answer: B
Solution: Circular 230 §10.27 requires practitioners to retain records for a minimum of 3
years after the conclusion of the engagement.
6. Which of the following is a "covered opinion" under Circular 230?
A. A verbal opinion on a tax matter
B. A written opinion on a tax shelter
C. A tax return preparation
D. A general tax newsletter
✅ Correct Answer: B
Solution: A covered opinion is a written opinion on a tax shelter or a marketed opinion.
Verbal opinions and general newsletters are not covered.
7. A CPA is asked to prepare a tax return for a client who wants to claim a
deduction the CPA believes is frivolous. What should the CPA do?
A. Claim the deduction
B. Refuse to prepare the return
C. Claim the deduction but disclose it
D. Report the client to the IRS
✅ Correct Answer: B
