Generally, Code 2 is reflected on the Form 1099-R received from the payer of the distribution for a Roth IRA conversion, where a Traditional IRA is converted to a Roth IRA.
Per IRS Publication 590-A Contributions to Individual Retirement Arrangements (IRAs), page 29:
Income. You must include in your gross income distributions from a traditional IRA that you would have had to include in income if you hadn't converted them into a Roth IRA. These amounts are normally included in income on your return for the year that you converted them from a traditional IRA to a Roth IRA.
You don't include in gross income any part of a distribution from a traditional IRA that is a return of your basis, as discussed under Are Distributions Taxable in IRS Publications 590-B.
The Form 1099-R distribution data must be entered in TaxAct for Form 8606 to calculate. To access the entry fields for the 1099-R to enter the information when a Traditional IRA is converted to a Roth IRA:
The converted amount will be reflected on Form 8606, Line 16 and the taxable amount will appear on Form 8606, Line 18 which will then be transferred to Schedule 1 (Form 1040), Line 4b.
If you have a basis in the converted amount, the taxable amount may be reduced. You will want to check the Prior year nondeductible traditional IRA contributions box on the screen titled Retirement Plan Income - Nondeductible IRA contributions when going through the Form 1099-R section of the Q&A. Then, when you get to the Form 8606 section of the Q&A (right after the Form 1099-R section), you will enter your basis in ALL traditional IRAs on the screen titled Nondeductible IRAs - Basis in Traditional IRAs. Finally, on the screen titled Nondeductible IRAs - Basis in Roth Conversions, you will need to review and/or modify the basis you had in the amount that was converted. Based on these entries, the TaxAct program will calculate the appropriate taxable amount to transfer to the Form 1040.