The closing company would have mentioned the 1099-S form in the blur of paperwork they passed by you at the closing so they are not to blame for your not remembering it or knowing what to do with it . All you need to do now is to respond to the IRS notice with the hard facts as already mentioned in this thread and this issue will be put to rest ... you will likely get another letter while the situation is being processed. Don't think it will work but you can try calling the number on the notice to settle this.
