Although the cash inheritance is not taxable, you are a beneficiary of the Estate. That means you pay tax on the income from the Estate, as reported on the K-1.
Because the Estate removed it from the IRA, that is taxable income, which flows to you through the K-1 (assuming it was a deductible Traditional IRA). If the money was just in the decedents bank account (not an IRA), it would not be taxable. But because it was in an IRA, it is taxable.
As fanfare noted below, the income from the K-1 is not a fixed 40%. It is taxed at your regular tax rate.
