The Red Alert in the electronic filing steps: "Error or Omission: Electronic Filing" with the following text, indicates there is an inherited IRA entered in the return with a prior basis (or there has not yet been an indication the prior basis was zero).
This return does not qualify for electronic filing.
The IRS does not allow Electronic Filing of returns when there is basis within an inherited IRA. This information can be reviewed within the Federal Quick Q&A Retirement Plan Income subtopic "Inherited IRA". You will need to file a paper return.
As the Modernized e-File (MeF) program of the IRS will only allow one copy of Form 8606 Nondeductible IRAs per taxpayer, any e-filed Form 8606 is considered to be related to either the taxpayer's or spouse's own personal IRAs.
If an IRA is inherited and there is a basis, that basis remains with the IRA and unless the individual is the decedent's spouse and chooses to treat the IRA as their own, the basis cannot be combined with any basis the taxpayer or spouse may have with their own traditional IRAs. Due to this, when there is a basis to the inherited IRA, there must be a paper filed Form 8606 due to the e-file limitation, discussed earlier.
If there is no basis within the inherited IRA, then the second Form 8606 is not required and the return can be e-filed. The TaxAct program does request confirmation that there is a zero basis in the inherited IRA to determine if e-filing can be allowed or not. This is done by checking Check if prior years basis in inherited traditional IRA is zero on the "Form 1040 - Retirement Plan Distributions - Taxpayer (or Spouse) - Special Distribution Worksheet" accessible through the worksheets section of the forms list for Desktop customers or through a review of the Alerts in the online program as outlined below. If this box is checked, then e-filing should be allowed.
If you find the prior year basis in the inherited IRA was zero and need to correct your return, you can do so on the Yellow Program Alert: "Warning: Prior Years Basis in Inherited IRAs" by reviewing the Alerts in the program (click Review, click Alerts, then click Start Alerts and continue until you see that Alert) or follow the steps below to correct that entry in the Q&A interview screens.
To access the Q&A interview screens for the basis in an inherited IRA (note you will only see the selection of inherited IRA below the Retirement Plan Income section if you already have information for an inherited IRA already entered in your return):
Once you have completed these steps, the Alert in the filing steps should be gone.
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.