Best Practices: What do we do when the IRS tells us they are going to issue a NOPA outlining their conclusions of the audit?

Q: Our interviews are over, and the IRS exam team is telling us they are going to issue a NOPA outlining their conclusions of the audit. What do we do?

Jason Massie answers:

Respectfully, ask the IRS exam team whether they would share a copy of the NOPA with you in “draft” form. Tell them it is important to you that they have all of the facts correct, and that you want to make sure they understand your position.

We are finding since the IRS exam team wants to quickly review claims, and shortcut exams by conducting SME interviews, that they don’t always do a good job with the facts. This is especially the case with new auditors. We have found certain draft NOPAs to contain a “copy and paste” approach where they actually pull language another agent has written out of one NOPA and pull into another NOPA, even when the taxpayers have no facts that are similar. For example, we saw manufacturing R&D language in the NOPA for one of our software clients. It was a classic situation where the agents are not skilled enough to know the difference.

Since Appeals isn’t going to let you introduce new facts at Appeals, it is more important than ever to come to some agreement on the facts during exam. There is a school of thought that if you have all of your facts in IDR responses, and the IRS exam team still doesn’t understand things and they issue a NOPA, then you go into Appeals with a stronger bargaining position by arguing that exam didn’t get the facts right. We have found that to be a riskier proposition than just having exam change the NOPA facts to be the correct ones. We would like the NOPA facts to be fairly clean if possible as we feel Appeals will start with that version to read first, and we don’t want wrong facts to create a bad first impression.

If exam is not willing to issue you a draft NOPA, then you are going to be stuck making your fact and position corrections directly in your protest should you decide to go to Appeals. If you did ask exam to send you a draft, and they didn’t want to, then I have used that to my advantage at Appeals. Sometimes it can show Appeals that the IRS was in a rush to get the NOPA out, and they didn’t give the taxpayer the courtesy of a review.

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