First, you must review your 2020 return to see if you did in fact fail to report income.
If you believe your return was correct, you reply with a letter and detailed explanation showing that you did in fact report all your income and pay the appropriate tax.
If you agree with the deficiency and the amount, you can just pay the bill. You don't need to file an amended return because the IRS has already adjusted your return in their computer. If you want to request a waiver of the penalty portion of the payment, @Bsch4477 gave you the link. However, you still owe your correct tax, and the interest portion of the payment can't be waived by law, even if the penalty portion is waived.
If you agree you made a mistake but you disagree with the amount, you need to prepare an amended return. Send the amended return, a detailed letter of explanation, and your revised payment, to the office that sent the notice (and not the normal amending address.)
There are two potential issues I see with your story.
First, regarding COVID withdrawals. You must still report the withdrawal and pay the regular income tax, although the 10% penalty for early withdrawal was waived for 2020. You can spread the tax on the withdrawal out over 3 years or pay it all in 2020 but it must be reported correctly. Did you report your withdrawals?
Second, and probably the more likely problem, is that if you had an outstanding loan from employer 1, that loan doesn't roll over, even if employer 2 uses the same plan custodian. You have 60 days to repay the loan balance; after that, any outstanding balance is converted to a distribution and is taxable. Under the CARES act, you would have had until 12/31/2021 to repay the loan--however, making new contributions through employer 2 is not the same as repaying the loan from your plan with employer 1. There is a procedure for repaying the loan even after you change employers, but as you missed the deadline, there's no point in going over it.
My guess is that you didn't repay the loan and didn't include the resulting distribution on your tax return. However, you need to verify your situation and review what you did and what you filed, to see if you have a case to argue with the IRS. Take special notice of any deadlines in the letter; if you fail to dispute the amount of the alleged deficiency within the time allowed, you lose your right to dispute it.
