I had a similar situation years ago. Within an IRA, an LLC interest was purchased for $30K. LLC went bankrupt. IRA Custodian issued a 1099-R for the $30,000 cost. We reported as -0- taxable on 1040. IRS sends matching notice. We respond. IRS is not moved. Bills for tax, interest and penalty ensue. Went to Taxpayer Advocate. Client's account was levied. Taxpayer Advocate said they couldn't stop it when presented with notice. Client eventually went to his elected representative's office. He finally got his money refunded and case closed. This took about 4 years.

I have no words of wisdom but I wish you luck.