Which of the following acts is most likely to cause a piercing of the corporate veil, holding shareholders personally liable?

Answer options:

Failing to make a profit for three consecutive years.

Commingling personal and corporate funds.

Forming the corporation to limit liability.

Having only one shareholder.

How to approach this question

Identify the abuse of the corporate form. Commingling funds = treating the corp as a piggy bank.

Full Answer

B.Commingling personal and corporate funds.✓ Correct

Courts will 'pierce the corporate veil' and hold shareholders liable if the corporation is used as an 'alter ego' of the shareholders. Commingling personal and corporate funds is a primary factor indicating such abuse. Mere losses or single ownership are not grounds for piercing.

Common mistakes

Thinking single-owner corporations are automatically suspect.

Question 66 All questions Question 68

Practice the full CPA REG Practice Exam 2

72 questions · hints · full answers · grading

More questions from this exam

Q01A CPA is representing a client in an IRS examination regarding a complex tax shelter transaction....Hard Q02A tax return preparer is facing a penalty for an understatement of tax liability on a client's re...Hard Q03Taxpayer L received a Statutory Notice of Deficiency (90-day letter) from the IRS regarding a tax...Hard Q04A CPA is sued for common law negligence by a third party who relied on the CPA's audit report. Th...Hard Q05Which of the following communications between a CPA and a client would generally be protected by ...Hard

View all 72 questions →