Hi and welcome to our site!
Let start with the fact that inheritance
is NOT taxable income
received by the estate or beneficiaries
AFTER the decedent passed away might be classified as Income in Respect of the Decedent (IRD) - and could be taxable.
Examples of IRD include interest
paid to the estate AFTER the date of death, distributions
deferred accounts (401k, IRA, annuity, etc), gain from the sale of inherited assets
Income in respect of the decedent is the gross income
that the decedent would have received had death not occurred and that was not properly includible in the decedent's final income tax return
Income in respect of a decedent realized AFTER the death is taxable the same way as it were taxable decedent.
It is taxable for the estate OR if distributed to beneficiaries - the tax liability
is passed to beneficiaries as well.
When the estate is the beneficiary of the IRA account - the distribution is reported to the estate - and reported on the income tax return of the estate - form 1041
Then - if passed to beneficiaries - that amount is deducted on 1041 (thus the taxable income is eliminated) - and passed to beneficiaries on schedule K1 - separately to each beneficiary - who in turn would include pro-rata share in individual tax return
Let me know if you need any clarification or help with reporting