What is the tax liability on in an inherited IRA?

If you inherit an IRA, who you inherit it from determines how it can be taxed. If you inherit from your spouse, you have the option to treat it as your own IRA. If you are the beneficiary of someone who is not your spouse, the only option is to hold on to it and take distributions. In either case, you are normally not subject to taxes until the time you begin to receive payments.