I don't doubt the letter from the IRS, as they've recently instituted new software, and a lot of people are getting letters.
However, maybe the domainer should start with a reputable accountant. It may be advisable to amend a number of years to recategorize various domain expanses in order to minimize the tax bill. The IRS will grant some time for him to refile if necessary, but he should not delay. He should also get his records organized.
Reading between the lines, it sounds like he didn't report a capital gain. It could have been unintentional or intentional. Deliberately hiding income is tax fraud, and the IRS can and often does seek criminal penalties.
Once he knows where he stands, there are a variety of avenues to take. The IRS allows installment payment plans over time. He can request this himself. You can also negotiate for a reduced settlement of the amount owed. There are local attorneys who specialize in this. Finally, if he fraudulently hid income, he may need to find a good criminal defense attorney.
