The nitric acid-ammonia system is studied by high level ab initio calculations. The equilibrium structure, vibrational frequencies, and binding energy of the system in the gas phase are calculated at the second-order Moller-Plesset perturbation level with the extended basis set 6-311++G(d,p). The potential energy surface along the proton transfer pathway is investigated by calculations at the same level of theory, and the effect of water as a solvent on the structure and stability of the system is investigated using self-consistent reaction field theory, It is found that the equilibrium structure contains a strong hydrogen bond with nitric acid acting as the hydrogen bond donor and ammonia as the acceptor. The binding energy is calculated to be D-O=12.25 kcal/mol (D-e = 14.26 kcal/mol), which is about three times greater than the binding energy for the water dimer. The OH stretching frequency of nitric acid in the hydrogen-bonded complex is found to be red shifted by over 800 cm-(1), with an enhancement of over an order of magnitude in the infrared intensity from the isolated nitric acid molecule. The structure of ammonium nitrate corresponding to the product of a proton transfer reaction is found to be highly unstable on the potential energy surface. The most energetically favorable gas phase reaction of nitric acid and ammonia in the absence of a solvent results in proton exchange, not proton transfer from acid to base. The structure and stability of the system change drastically in the water solvent medium. In the water solvent, the hydrogen-bonded structure is no longer stable and the system exists as an ammonium nitrate ion pair resulting from the completed transfer of a proton from nitric acid to ammonia. On the basis of these results, we conclude that it is unlikely to form gaseous ammonium nitrate from nitric acid and ammonia, and that the formation of particulate ammonium nitrate most likely involves a heterogeneous mechanism.