If you cashed out a retirement account the distribution was reported to the IRS. Money you take from a retirement account is taxable income. Depending on the circumstances, that money may be subject to a 10% early withdrawal penalty and ordinary income tax as well. You should have entered a 1099R on your tax return for that for the tax year in which you received that money. It may have taken this long for the IRS to catch it, but now you need to sort it out with the IRS.
I assume you mean you left that job. Did you have a 401(k) with the company?
Even if you did not cash out the 401(k) when you left, many company plans provide that they will automatically roll the 401(k) into an IRA in your name if you do not cash the plan out in a year or two. If that happened, then they would have sent a 1099-R showing the rollover. That would not be taxable if reported on your tax return, but failing to report it can result in the IRS assuming that you took the money. (Just a guess).
"it has something to do with a taxable retirement income im guessing?"
Don't guess about what the IRS letter is about. Read the entire letter carefully and make sure you understand exactly what it's about and what you have to do. If you have trouble understanding it, bring the letter and your tax return to a local tax professional and ask the tax pro to explain it to you.