Purchasing another home after the sale of your primary residence is no longer relevant. The requirement to purchase another primary home after the sale of your other home at the same or greater price as the sale of the other home to defer any capital gains was removed from the tax code in 1997.
This sounds like you received a Form 1099-S for the sale of the home and you did not report the sale as required by the IRS.
Assuming that this was your primary home and it was never used as a rental or in a business -
If you sold your primary personal residence and you lived in and owned the home for at least two years in the five year period on the date of sale, you do not have to report the sale if your gains are less then the exclusion amounts of $250,000 if filing Single or $500,000 if filing Married Filing Jointly (and both lived in the home for two years).
If you had a gain greater then the exclusion amounts then you would have to report the sale. Also, if you received a Form 1099-S for the sale either with a gain or a loss, the sale has to be reported.
Contact the IRS and see what they want you to do. There is a phone number in the notice you received.
More than likely the IRS will want you to amend the tax return and report the sale on a Schedule D and Form 8949.
