Inherited Annuity Taxability and Handling

My step-mother received a 1099-R from Hartford for a Lump-sum amount she inhereted from her Dad showing both the payout and the taxable amounts being the same amount. There was some foul-up in that Hartford did not know what her Dad had paid for the annuity. She told them and evidently Hartford was going to update the taxable amount to be the difference between the payout amount and what he had paid for it. I think the reasoning at Hartford was that he had already paid taxes on the money he paid for the annuity, but the gain between what he paid and the payout amount hadn't had taxes paid on it. He did not receive payments from the annuity. Hartford calls it an Individual Non-Qualified Annuity Contract (Other than a Spouse Named as Sole Beneficiary). I have never dealt with death benefit taxes. Line 16a and

16b on the 1040 deal with them but seem more oriented to the person with the annuity who receives regular payments. I heard that annuity death benefits were only taxed at 10%, but I can't find anywhere else on the 1040 that the income (annuity value minus the annuity cost) would be entered. Also, isn't the beneficiary's basis in inherited property the fair market value at the time of death. If that's the case here then would there be little or no tax on the lump-sum distribution?