The distribution code seems to be the answer, even though I don't see Inherited IRA distributions listed as a reason to not count them for the 8606. To test this theory, I just manipulated the spouse's 1099-R, changing the distribution code from 4 (death) to 7 (normal), which caused our refund value to increase and created an 8606-S. When I changed the distribution back to the correct value of 4, the refund value decreased to the earlier value and the 8606-S form disappeared. It would be nice if Turbotax continued to the screen that allowed the customer to view and answer the question about having made nondeductible IRAs, then tell the customer that it will be treated differently because it's from an Inherited IRA. Or created a screen that said because the taxpayer / spouse had distributions only from Inherited IRAs, form 8606 does not apply. I have spent many hours trying many thing including repeating imports and adding in a fake IRA overcontribution to try to figure this out. The IRS forms that don't mention that Inherited IRAs don't count were not helpful unfortunately, so I'm hoping Turbotax will fill in the gap!
