A CPA is representing a client in an IRS examination regarding a complex tax shelter transaction. The CPA discovers that the client had omitted a significant amount of income related to the transaction on the filed return. Under Treasury Department Circular No. 230, which of the following actions must the CPA take?

Under Circular 230 §10.21, if a practitioner knows that a client has not complied with the revenue laws or has made an error or omission in any return, the practitioner must advise the client of the noncompliance, error, or omission and the consequences of such act. The practitioner is not required to notify the IRS (which would violate confidentiality) or withdraw immediately, nor can they file an amended return without client approval.