TurboTax is behaving correctly. The Forms 8606 prepared by TurboTax are only for your own (and your spouse's, if filing jointly) IRAs. Nothing related to an inherited IRA is includible on these Forms 8606. If the decedent had basis in nondeductible traditional IRA contributions, you must calculate the nontaxable and taxable amounts of this distribution outside of TurboTax as tell TurboTax the taxable amount of this distribution.
