Have a Tax Question? Ask a Tax Expert
OK this is where it gets to be art more than Science, I think
If it were me I would, as you said, consider "... a letter prepared by me " indicating the Form 1040 amendments are necessary and she chose not to hire me..." sufficient for due diligence and disclosure
HOWEVER, if it were me, I would draw the line at doing the 2012 return (having knowledge of the previos years' information).
Probably stating the obvious, but as long as the 2012 return can be done in a compliant fashion, you're TECHNICALLY OK, but for example I remember my Fed Tax professor making the statement (and I think you'll see this in the AICPA obligations as well) tax compliance is a part of the job ...
To take a bit of a philosophical bent, this could be a defining moment for you. The CRAP that the big eight firms sold for years (not unrelated to why it's now the big four) would be right in line with going ahead and doing this year's return (technically OK) but I'll be that at some time in the past each one of those firm's partners crossed over that line and things started going the way they did .. or a long time ... until Enron, Global Crossing and other blew it all up
Sorry I can't help you more, but I think this one's a judgment call ... I CAN tell you that since that time the ABA model rules of conduct have been changed to REQUIRE disclosure in those kinds of situations (especially as it relates to walking away from the client only to let another firm walk right into a bad situation) ... I know you're not an attorney, bet the recent tide as been to err on the side of proactive disclosure, as opposed to waiting on a request
Finally, this probably need to be done in terms of whatever professional or membership standards you have to meet ... enrolled preparer, circular 230, etc. Let me know if you'd like some research specific to certain code or rules
Hope this helps you flush it out
Would you mind sending the code it references. I will call the client to discuss this.