In the program, you enter your state tax refund from the prior year's return. You are asked if you itemized in the prior year or if you took the state sales tax deduction rather than the state income tax deduction on your prior year itemized deductions. If you did not itemize in the prior year o, if you took the state sales tax deduction, then your state refund is not taxable.
The IRS sends this notice any time they have a return that shows no entry on line 10 but they received information that you received a state ta refund.
They are quite often wrong in sending out the notice, because they do not check to see if you itemized in the prior year or if you took the state tax refund.
Look at your your 2017 return to see if you used a Schedule A and if you took the sales tax deduction on line 5. Call the number on the notice and ask the IRS to review your 2017 return to verify if your refund was taxable or not.
As already mentioned, the Guarantee covers only interest on additional tax, not the additional tax. Most likely, you will end up not owing any.