You should speak with a tax lawyer right away. Many notices are time sensitive, particularly a Notice of Deficiency. Do not delay or you may loose your appeal rights!
If you do not like this answer or disagree, please look at one of the other answers provided. It is not necessary for you to try prove this answer is "wrong" or something with which you do not agree. This is a free service for you based on limited facts. Nevertheless, many times you need to consult an attorney with the details to get actual advice specific to your concerns. Do not put too many details in your questions or comments because this makes the information public and could hurt you. Government Regulations contained in IRS Circular 230 regulate written communications about Federal tax matters, including e-mail, between us and our clients. This is another attempt by the government to limit your rights and to extend the control of government over individuals and businesses. Nevertheless, such communications are either opinions or other written communications. This is not an opinion. It is other written communication and was not written to be relied upon, by itself, to avoid any tax penalties. In order to receive assurances of protection from tax penalties from a written communication, you should get an opinion letter. If you would like to discuss an opinion letter relating to any matter, please contact me and I will explain what is involved and what it will cost.
Have seen this issue many times before. A tax lawyer or CPA can help you as it is a run of the mill notice. What happens is that the IRS is given notice (per Form 1099-B) that you had sales proceeds from sale of securities in a brokerage account. However, the IRS does not give you credit for the cost basis in such securities sold so they send you a notice showing 100% of the proceeds as taxable income. You just need to send a letter explaining why you failed to report the sales they will list and explain that you have enclosed an amended Schedule D which reflects the appropriate gain or loss with respect to the unreported security transactions.
My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained. Please click "helpful" or "best answer" if my answer added any value or add a "comment" if you have more info for me to help you get a better answer.
What you likely received is a CP-2000 notice. This is a notice wherein the IRS picks up unreported income. This is easy to fix, but must be done so within certain timelines to avoid IRS collections. So, you should get to a tax attorney or a CPA experienced in working with CP-2000 notices. Essentially, the IRS assumes that you have no tax basis in the stock sales and would incur short-term capital gains. Our firm can assist you in this matter.
Marty Davidoff, email@example.com, 732-274-1600. This answer is provided for general information only. You should seek advice from an attorney or tax professional.