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.
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.