It sounds like your spouse was listed as beneficiary of her mother's retirement account. If the retirement account is a traditional IRA, it is taxable as ordinary income (sometimes making a lump sum distribution a poor choice from a tax perspective). If the account was a Roth IRA, it would not be taxable. Either way, you should enter the 1099R on the income tax return. What is taxable is generally the amount entered in box 2 of the 1099R. What type of distribution it is will depend on the code entered in box 7 of the 1099R. See:
https://ttlc.intuit.com/questions/2562809-what-do-all-the-codes-in-box-7-of-the-1099-r-mean
State laws vary regarding the taxable portion of an inherited retirement account, it may or may not be taxable by the state.
