The CPA Exam’s REG section not only tests multiple-choice questions but also Task-Based Simulations (TBSs), which replicate real-world tax and business law challenges. In this Part 1 guide, we provide 5 high-quality TBS examples covering:
- Individual taxation
- Partnership basis
- Corporate income tax
- Business law
- Professional ethics
Each simulation includes requirements, worked-out solutions, and explanations to help you understand the logic behind the correct answers. Whether you’re self-studying or in a review program, these TBSs will boost your exam readiness and problem-solving skills.
📘 CPA REG Task-Based Simulations (TBS) – Part 1
TBS 1: Individual Income Tax Return
Scenario:
Alex, a single taxpayer, earned the following in 2024:
- Wages: $85,000
- Qualified dividends: $3,000
- Student loan interest paid: $1,500
- Standard deduction (2024): $14,600
Requirement:
Compute Taxable Income.
Solution:
- Wages = $85,000
- Dividends = $3,000
- AGI = $88,000 – $1,500 (student loan interest) = $86,500
- Less: Standard deduction = $14,600
- Taxable income = $71,900
✅ Explanation: This tests ability to apply AGI adjustments and standard deduction.
TBS 2: Partnership Basis Calculation
Scenario:
Sara contributes $50,000 cash and a building (basis $70,000, FMV $100,000, mortgage $20,000) to a new partnership. The partnership assumes the mortgage.
Requirement:
Compute Sara’s initial basis in the partnership.
Solution:
- Cash = $50,000
- Building basis = $70,000
- Less: Debt relief = $20,000 (partnership assumes it)
- Initial basis = $100,000
✅ Explanation: Basis = Cash + adjusted basis of property – liabilities assumed by others.
TBS 3: Corporate Taxable Income
Scenario:
A C Corporation reports:
- Gross receipts: $500,000
- Operating expenses: $320,000
- Charitable contributions: $50,000
- Dividends received from 20%-owned corporation: $40,000
Requirement:
Calculate Taxable Income.
Solution:
- Gross receipts = $500,000
- Less: Expenses = $320,000
- Tentative income = $180,000
- Charitable limit = 10% × $180,000 = $18,000
- Less: $18,000 charitable deduction
- Dividends received deduction (65% × $40,000 = $26,000)
- Taxable income = $136,000
✅ Explanation: This tests corporate rules: charitable limits and Dividends Received Deduction (DRD).
TBS 4: Business Law – Contract Validity
Scenario:
Mark, 16 years old, signs a contract to purchase a motorcycle for $5,000. After two weeks, he wishes to cancel.
Requirement:
Is the contract valid, void, or voidable?
Solution:
- Since Mark is a minor, contracts are voidable at the option of the minor.
- Mark can cancel (disaffirm) the contract.
✅ Explanation: This tests contract law principles under REG.
TBS 5: Ethics & Professional Responsibility
Scenario:
A CPA prepares a client’s tax return. The client insists on omitting $20,000 of unreported income.
Requirement:
What should the CPA do under AICPA Code of Professional Conduct?
Solution:
- CPA must not sign a return that omits income.
- Must advise client of the requirement to include all taxable income.
- If client refuses, CPA should withdraw from engagement.
✅ Explanation: Tests ethical duties of CPAs in practice.
This concludes CPA REG TBS Part 1. By practicing these simulations, you’ll strengthen your ability to apply tax rules, legal principles, and ethical standards under exam conditions.
Next Part: CPA REG TBS Part 2
Next Part: CPA REG TBS Part 3
Next Part: CPA REG TBS Part 4
👉 Next, check out CPA REG TBS Part 2 for more advanced scenarios on tax credits, like-kind exchanges, corporate distributions, and more. Consistent practice across all TBS parts will prepare you for exam day success.
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