The CP 2000 is stating that you failed to report a distribution from a retirement account in 2009. This is likely a 401K or IRA. You can identify the source by calling XXX XXX XXXX and requesting income transcripts for this year. If you filed married joint, you will need to have your spouse do the same. Once you have these documents, compare them to the return you filed and you will know what 1099-R was not reported.
As far as the tax goes, the only thing you can do is sign the CP2000 or amend the return if you completed a qualifying indirect rollover from the account. If it was a distribution, it is taxed and subject to a early withdrawal penalty if you were under 59 1/2.
In addition to the early withdrawal, the IRS has also charged you a failure to pay penalty, an accuracy related penalty, and interest compounding daily. You have options for each.
1. The amount due- The best thing to do is to pay it. Interest will continue to compound daily retroactively from the original due date of the return. Pay the full amount as soon as possible to avoid owing more. If you cannot pay, and the total balance is under $25K, send IRS form 9465 as soon as possible to avoid the IRS taking collection action and filing a tax lien. The payment requested must pay the amount due within 60 months. If you cannot afford that, you need to complete IRS form 433F. The IRS will set a payment based on your financial ability to pay but will file the lien.
2. Penalty- You can file IRS form 843 to request the IRS remove the penalties. You will need a good reason for not including the income on your return, and you have a better shot if you pay the amount in full first. If approved, the IRS will refund the penalty that was paid.
3. Interest- The IRS will remove interest that has been charged on penalties if they remove the penalties. Otherwise, their is not method of requesting the reduction of the interest.
Note: Do not file an Offer in Compromise attempting to settle the debt. It will take 6 months to 2 years to process while interest continues to acrue only to be rejected. Then you owe twice as much. I would not take such steps without great representation.
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