When entering a code 4 Form 1099-R with the IRA/SEP/SIMPLE box marked you must calculate the taxable amount yourself outside of TurboTax, then enter the result when TurboTax asks for it. Generally you should use a separate Form 8606 to do this calculation, mark this Form 8606 as being for calculating the taxable amount of the distribution from the inherited IRA (to distinguish it from Forms 8606 that TurboTax automatically generates for Taxpayer and Spouse's own IRAs) and include it with your mailed tax return.
