It was my understanding that Inheritance was not taxed so I didn't report it on my Income Tax.
That is where you made the mistake ... not all inherited items are tax free. Annuities are tax shelters where you DO pay the taxes on the distributions. A 1099-R should have been issued to you that you needed to report on the income tax return. That form shows the total distribution and the taxable portion which means not all of the distribution will be taxed. If you did not report this 1099 and the IRS caught the error then you will need to pay up if the IRS correctly adjusted your return.
Now if you need further assistance I highly recommend you seek local professional assistance where you can sit down face to face. Using this online public internet forum may not be the best choice for your situation.
