Ethics Issues:

You (a CPA) have prepared the tax returns for Mr. & Mrs. Sample for the past 15 years.They have become very close friends, as well as a profitable, loyal client.This tax season, while preparing their 2016individual income tax return, you discovered an error pertaining to their 2014individual income tax return.The error resulted in an understatement of income in the amount of $50,000 on Mr. Sample's Schedule C.In other words, had the 2014 error not existed, the Sample's income would have been $50,000 higher.This error, if corrected via an amended return, will cost the Samples an additional $20,000 in tax, plus possible penalties & interest. It's not entirely clear yet who is responsible for the error (you, or the Samples), and you are not certain whether or not the Samples are currently aware of the 2014 error.Further, you don't believe that it's likely that IRS will audit the Samples & identify the issue.

You are now faced with a variety of potential ethical and professional issues and responsibilities surrounding disclosure of the error to the Samples & the IRS, as well as your proper course of action.