As a preparer, you followed the instructions of the client**. The client needs to address this with their manager or compliance office. I agree that filing on time would more or less negate the issue.
**As a preparer, you are required to exercise due diligence, and not do something you know you shouldn't. I wonder if it is standard in your industry for the due diligence questionaire to included "Are you an IRS employee?" If that is not a typical question and you followed the industry standard practice, then you should be ok.
