You are a CPA in practice who has just obtained a new client. Another CPA completed the tax returns for the prior three years. The client has operated his business as an S corporation during the three-year period. After starting work on this year's tax return, you notice that the S corporation has an October 31 fiscal year-end. After examining the file, you discover that three years ago, when the S corporation adopted the fiscal tax year, a proper election was not made and other requirements related to the election were not met.

The client wants your advice on what to do now. You determine that there are three options: (1) you can do nothing and hope the IRS does not find out, (2) you can notify the IRS of the mistake and pay any interest and penalties, or (3) you can elect a calendar year and hope the IRS does not notice the current invalid fiscal year. What potential nonregulatory ethical issues do you see in this situation that could influence your decision on any recommendation?

Prepare in good form a file memo documenting your conclusions.