Do I need to pay federal tax on inherited money?

@moome_74 

Generally, any inherited money reported to you (and to the IRS) on a 1099-R will be taxable income.

Since the IRS indicates that you have underreported income and you suggest that this has something to do with an inheritance, it seems that you inherited Income in Respect of a Decedent (IRD).  This is deferred income on which the decedent had not yet paid taxes and is now taxable to you in the same way that this would have been subject to income taxes had it been paid to the decedent before the decedent died.  As fanfare indicated, this is common with payments reported on various types of Forms 1099 and is particularly common with income from retirement accounts reported on a Form 1099-R.

@moome_74  said "A representative with the IRS e stated I do need to pay taxes on inheritance.  Everywhere I have looked though states otherwise". 

An inheritance is not, generally, subject to income tax or being reported on you tax return. But there are exceptions: Inherited pensions, retirement accounts (IRA & 401k), interest and dividends on inherited investments (stocks and mutual funds), any gains on the sale of inherited assets and income in respect to a decedent.  Income reported to you on a 1099 or K-1 is usually taxable.