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Assuming that it is a Traditional IRA, yes, it is taxable as ordinary income unless there was some after-tax "basis" in the IRA. You would need the fathers past tax returns to see if he ever filed a 8606 form if he took a distribution or made a non-deductible contribution.
You should receive a 1099-R with a code 4 in box 7 for an inherited Traditional IRA.
(If a Roth IRA 1099-R with a code T in box 7 then it would not be taxable since Roth's are after-tax money)
was the IRA cashed in? Was it a ROTH or other type of IRA?
Your wife has several options as to what to do with her inherited IRA. These are well-described in this web page from Charles Schwab (be sure you click on the "non-spouse" options): https://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/inherited_...
If she's not sure what to do, I strongly suggest she talk to the bank or brokerage that held her father's IRA. I'm sure they will help her.
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