Are you a spouse beneficiary of the Inherited IRA? Only a spouse beneficiary can convert an Inherited IRA to a Roth. However, to do that the spouse must first put the Inherited IRA into their own name. A direct conversion from an Inherited IRA is not possible and may be why a penalty is showing.
Where and what type of penalty are you seeing? Also, what codes are in Box 7 of the 1099-R?
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