Question

What is a tax preparer's correct response to a taxpayer after learning that the taxpayer has omitted items on their previously-filed income tax return?
Advise the taxpayer promptly of the fact of such omission and advise them of the consequences as provided under the Internal Revenue Code and Preparer Regulations.
Advise the taxpayer promptly of the fact of such omission and make an adjustment for the previous year's omission on the current-year return.
Advise the taxpayer promptly of the fact of such omission and notify the IRS.
Advise the taxpayer promptly of the fact of such omission and refuse to prepare the current-year return until the previous-year return is amended.

Answer 1

Advise the taxpayer promptly of the fact of such omission and advise them of the consequences as provided under the Internal Revenue Code and Preparer Regulations.

Explanation: the preparer should inform the client of the omission, explain the tax/penalty consequences and options (including filing an amended return). The preparer should not unilaterally notify the IRS or shift the omission to the current-year return. If the client refuses to correct, the preparer may decline to prepare future returns, but the immediate duty is to advise.