@skfromaz2 , for the transaction to be a trustee-to-trustee transfer the original IRA custodian must make the payment directly to the receiving IRA custodian, with the payee being something like "New Custodian Inherited IRA FBO skfromaz2." If that was done, there is no reason that they should not correct the Form 1099-R to reflect the fact that no distribution was made to you despite having mistakenly internally coded the transaction as a distribution. If they refuse and you need to file a substitute Form 1099-R (Form 4852) showing $0 in boxes 1 and 2a, you'll want to make it clear in the explanation that the payment was never made to you personally but was instead paid directly to the receiving IRA. It might be helpful to obtain from the old custodian documentation showing the payee for this distribution. Without documentation supporting an assertion that the funds were not paid to you, the IRS is likely to believe the Form 1099-R from the custodian over the substitute provided by you.
If they instead made the payment to you personally, the distribution is irrevocable and was not eligible to be deposited into another inherited IRA and the deposit of such funds into an inherited IRA would would generally be an excess contribution to that IRA. (Congress has considered changing the law to permit rollovers of such distributions, but such a change hasn't yet become law.)
