At Turbo Tax-We are your tax advocates and certainly want things work out well for you. But in this case the IRS appears correct in mentioning state inheritance law does not supersede federal law.
(IRS) has two sets of laws:
1) Estate tax on your mother's estate. (Condolences) In 2021 only estates greater than $11,700, 000 were subject to estate tax. So depending on the value of you mother's estate tax, then Federal estate tax might not apply
2) Disposition of inherited property by beneficiary's which if applicable become taxable to the personal tax return of the beneficiary.
It appears such a disposition took place, which is why the IRS got involved. If so the next step is to determine the type of property involved, including value of property as of date of death and sales price of property and then determine if the IRS proposed adjustment is correct.
If the property in Question was a retirement account, then special rules apply and typically the full amount distributed is subject to tax on the beneficiary's individual tax return. In this case you should have received form 1099R and claimed the distribution on your tax return.
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