What are our options when the IRS claims we owe over $2k in taxes and interest for every trade my husband made on Robinhood in 2021, even though he actually had a loss of $200 and never cashed out any profits?

It sounds like your husband was probably trading crypto - Robinhood reports the total proceeds of all crypto transactions to IRS, but they don't report the cost basis. So IRS assumes the total proceeds are taxable.

In order to respond to this he needs to download the 1099(s) for that year from Robinhood - they do separate 1099s for stocks and crypto. They all get reported as capital gains on a tax return.

The specific forms needed from the tax return are Form 8949 and Schedule D. He can try to use TurboTax to amend and add the capital gains transactions, or he can use FreeTaxUSA to recreate the 2021 return using the Prior Year menu. DO NOT SUBMIT an amended return for that year - as instructed in the notice, respond to the notice with applicable forms.

Form 8949 is used to show the proceeds (sale price) and cost for each transaction when this information is not reported to IRS. My recommendation is to use FreeTaxUSA and the summary entry for capital gains so he doesn't have to enter every trade; then he can print out the forms from the tax return and a copy of the entire 1099 from Robinhood and send that to IRS.

Summaries need to be separated by Short-term and Long-term, and whether cost basis was reported to IRS or not. Usually there will be a summary section on the 1099 showing the breakdown, but I believe Robinhood crypto 1099 doesn't have that. In any case I'm sure it was all Short-term & Cost basis not reported to IRS, because that's what pretty much everyone who dabbled in trading did. Also if there are separate 1099s those summaries need to be entered separately.

Recreating the entire tax return using FreeTaxUSA also gives you a better calculation of any additional tax owed for capital gains. If he ended the year with a loss, up to $3k of that loss can be used to lower taxable income in a year - you might even be owed a small refund.

If he continued to trade in 2022 then that return might need to be amended. Also it's possible that the state tax return may need to be amended for 2021.

Send the response that you disagree with the CP2000 proposal, Form 8949, Schedule D, and a copy of the entire Robinhood 1099 by certified mail.

If you need more time you should be able to get 30 more days by calling the number on the notice or by sending a request by mail before the deadline.