What Is a Notice of Proposed Assessment?

A Notice of Proposed Assessment is a formal communication from a tax authority, such as the Internal Revenue Service (IRS) or a state tax department. It informs a taxpayer of proposed adjustments to their tax liability. This document is not a final bill, but an initial notification of changes the authority believes are necessary based on their review of a tax return or other financial information. Receiving this notice indicates the tax authority has identified discrepancies that could lead to additional tax owed or a reduced refund, requiring a timely response.

What a Notice of Proposed Assessment Is

A Notice of Proposed Assessment details the tax authority’s suggested changes to reported income, deductions, credits, or other items on a tax return. The purpose of this communication is to alert the taxpayer to these proposed modifications and provide an opportunity to address them before a final assessment is made. The notice outlines specific reasons for the proposed adjustments, such as unreported income, disallowed deductions, or discrepancies in claimed credits.

Receiving this notice means the tax authority has flagged an issue following internal review processes, which might include automated data matching or a more in-depth examination. For example, if income reported by a third party does not match the income declared on a tax return, a notice might be issued. Similarly, if certain deductions or credits lack supporting documentation or appear miscalculated, the authority may propose changes. This provides an opportunity for the taxpayer to either agree with the proposed changes or present their case for why the original return was accurate.

Key Sections of the Notice

The Notice of Proposed Assessment outlines proposed adjustments to income, deductions, or credits, along with the reasons for these changes. For instance, it might detail that certain business expenses were disallowed or that additional income from a specific source was identified. This section helps in understanding the basis of the tax authority’s concerns.

The notice also calculates the new tax liability based on these proposed adjustments, including any applicable interest and penalties. Interest accrues from the original due date of the tax return, and penalties can be assessed for reasons such as underpayment, failure to file, or accuracy-related issues. A specific deadline for responding to the notice is provided, often ranging from 30 to 90 days. The notice includes contact information for the issuing tax authority and informs taxpayers of their rights, including initial steps for disputing the proposed assessment.

Preparing Your Response

Upon receiving a Notice of Proposed Assessment, thoroughly review the document. Compare the proposed changes against your original tax return and all supporting documents, such as W-2 forms, 1099 forms, bank statements, and receipts. Understanding the specific issues or reasons the tax authority has provided for the proposed assessment helps in formulating an effective response. For example, determine if the discrepancy stems from a clerical error, a misunderstanding of tax law, or missing documentation.

Gather all relevant supporting documentation. This may include receipts, invoices, canceled checks, bank statements, and any other records that substantiate the figures on your original tax return or refute the proposed adjustments. For instance, if a deduction for medical expenses is questioned, you would need to provide medical bills and payment records. The type of documentation required will directly relate to the nature of the proposed adjustment.

After reviewing the notice and gathering documentation, decide on a course of action. If you agree with the proposed changes, accept the adjusted tax liability and pay any additional amount due. If you disagree, prepare a clear, written explanation outlining your position. This explanation should directly address each proposed adjustment, referencing the specific laws or regulations that support your original filing and attaching all gathered supporting documentation. For complex situations, or if the proposed adjustment involves a significant amount, consulting a tax professional, such as a Certified Public Accountant or an enrolled agent, can provide valuable guidance and representation.

Submitting Your Response

Once your response is prepared, submit it to the tax authority. Accepted methods for submission include mailing your response to the address provided on the notice or utilizing a secure online portal if available. When mailing documents, use certified mail with a return receipt requested. This provides proof that your response was sent and received by the tax authority, which is important for meeting deadlines. Always retain copies of everything you send for your records.

If you agree with the proposed assessment, the notice will include instructions for indicating your agreement and making the required payment. This often involves signing a portion of the notice and remitting payment by the specified due date. If you disagree, submit your formal written protest or response, along with all supporting documentation that justifies your original tax return. Meet the response deadline stated on the notice, as failing to respond can have consequences.

If no response is received by the deadline, the proposed assessment becomes a final assessment, and the tax authority may proceed with collection actions. These actions can include accruing additional interest and penalties, placing a lien on your property, or levying bank accounts or wages. After your response is submitted, the tax authority will review the information and issue further correspondence, which may include a confirmation of your adjusted tax liability, an acceptance of your protest, or an invitation to a formal appeals process if disagreement persists. The time for the tax authority to respond can range from 30 to 90 days, or longer depending on the complexity of the case.