I would report it as other income on line 21, even if the state does not issue a 1099.
Under normal circumstances, the person who inherits the IRA must withdraw all the money within 5 years, or take a lump sum, or take distributions spread out over their life expectancy.
@dmertz is pointing out that since the heirs didn't take a distribution within 5 years, their only remaining option is to take small withdrawals spread out over their life expectancy. But I don't see how that can possibly apply in the case where the IRA trustee has turned the money over to the state's unclaimed funds office. There is no way now to put the money back into an inherited IRA, and no way to take small annual payments from the state -- they'll pay it all out. So I think the only thing that will actually work is to report the entire amount as Other Income. Then the heirs can do whatever they want with the money.
