Background and context

A Notice of Proposed Assessment (NPA) is a formal communication that informs you the IRS is proposing adjustments to a previously filed return. It commonly follows an examination or a comparison between the IRS’s third‑party data (W‑2s, 1099s, bank reports) and your return. In my 15 years advising clients, I’ve seen prompt, organized responses reduce or eliminate proposed increases in tax, penalties, and interest.

How an NPA typically works

  • Read the notice carefully: confirm taxpayer name, tax year, and the specific items the IRS adjusted (income lines, credits, deductions). The notice will state a response deadline (often 30 days but vary by notice); meet it.
  • Reconcile IRS figures to your return and third‑party forms (W‑2, 1099, 1098). Identify whether the IRS changed income, disallowed a deduction, or corrected credits.
  • Choose your response path: agree and pay; agree but request a payment plan; contest with documentation; or file an administrative appeal if eligible (see IRS appeals options) (IRS: What to Do If You Receive a Notice) [https://www.irs.gov/newsroom/what-to-do-if-you-receive-a-notice-from-irs].

Real‑world example (brief)

One small‑business client received an NPA listing additional gross receipts based on a 1099‑MISC reported by a client. We compiled bank deposits, invoices, and a client contract showing the funds were for reimbursed expenses—not gross income. Submitting a concise packet and a one‑page chronology persuaded the examiner to reverse the proposed assessment.

Who is most likely to receive an NPA

Any taxpayer may receive an NPA, but common situations include:

  • Mismatches between information returns (W‑2/1099) and your tax return.
  • Large or unusual deductions for small businesses or sole proprietors.
  • Corrected or amended third‑party reporting that creates a discrepancy.

Practical, step‑by‑step response checklist

  1. Verify details and deadline
  • Confirm tax year, amounts, and the contact/mailing address. Note the exact response deadline on the notice.
  1. Do not sign anything you don’t understand
  • If the notice includes a change form, don’t sign an agreement until you verify the numbers.
  1. Pull supporting records
  • Bank statements, invoices, contracts, receipts, canceled checks, payroll records, and copies of any information returns you received.
  1. Prepare a clear explanation and chronology
  1. Submit your response the way the notice instructs
  • Use the preferred mailing address or secure fax; keep proof of delivery. If the notice accepts electronic submission, follow the instructions precisely.
  1. Consider an amended return only if it corrects errors
  • Sometimes an amended return fixes the issue; other times it can create new questions—discuss with a tax pro.
  1. If you disagree, request an appeal or conference
  • The notice or IRS guidance will explain appeal rights. Appeals preserves rights while you and the IRS negotiate.

When to get professional help

  • If the proposed tax or penalties are large relative to your resources.
  • If multiple years or complex issues (e.g., basis, S‑corp distributions) are involved.
  • If the IRS indicates potential criminal issues—stop and call counsel.

In my practice I often advise clients to engage an enrolled agent, CPA, or tax attorney when: the amounts are material, the facts are complex, or multiple returns are implicated. For guidance on choosing representation, see When to Hire a Tax Attorney vs an Enrolled Agent for an Audit (https://finhelp.io/glossary/when-to-hire-a-tax-attorney-vs-an-enrolled-agent-for-an-audit/).

Common mistakes to avoid

  • Ignoring the notice (this can lead to default assessments, collection actions, and interest).
  • Sending an unorganized evidence dump without a clear explanation.
  • Missing the response deadline.
  • Assuming the IRS is always correct—many NPAs are resolved after documentation is provided.

Tips for organizing evidence (best practices)

  • Use tabs or a simple PDF bookmarks structure: cover letter, summary schedule, then source documents in chronological order.
  • Include a concise reconciliation showing how your numbers differ from the IRS’s proposed changes.
  • If records are electronic, prepare a compact, searchable PDF and include a table of contents. See our guidance on digital audit packages (Preparing a Digital Audit Package: Organizing Electronic Records for the IRS: https://finhelp.io/glossary/preparing-a-digital-audit-package-organizing-electronic-records-for-the-irs/).

Appeals and further options

If you can’t resolve the issue with the examiner, you may request a conference with the IRS Office of Appeals. Appeals is independent of the examiner and focuses on resolving disputes without litigation. If Appeals doesn’t resolve the case, options include petitioning the U.S. Tax Court (timing and procedures vary).

When to contact the Taxpayer Advocate Service

If you face economic harm, delays, or the IRS process is causing significant hardship, the Taxpayer Advocate Service can assist. Visit the Taxpayer Advocate Service at the IRS (taxpayeradvocate.irs.gov) for criteria and contact information.

Frequently asked questions

Q: How long do I have to respond to an NPA?
A: Respond by the deadline shown on the notice—commonly 30 days for many notices, but it varies. Missing the deadline can lead to automated adjustments.

Q: Can I pay now and contest later?
A: Yes, you can pay to stop collection and then seek refund or appeal, but discuss tax‑planning and cash flow implications with your advisor.

Q: Will penalties and interest keep accruing?
A: Interest accrues on unpaid tax from the original due date. Penalties may apply depending on the facts; timely dispute or agreement can limit exposure.

Professional disclaimer

This article is for educational purposes and does not substitute for personalized tax advice. For case‑specific guidance, consult a qualified tax professional or attorney.

Authoritative sources

In my experience, the single best thing you can do after receiving an NPA is to pause, read the notice fully, and assemble a one‑page explanation with supporting exhibits. Organized, timely responses make it far more likely the IRS will accept your position.