Good questions by Bob K.

1.  Property taxes were paid out-of-pocket by the taxpayer because she had no knowledge of the technical issues.  They should have been paid with funds in the IRA so I may have to do something to "repair" this oversight.

2.  The distribution from the IRA was initiated by the taxpayer for estate planning purposes.  She wanted to completely liquidate the IRA.  Also, the basis in the IRA was $0.

3.  A surviving spouse is not required to liquidate an IRA inherited from a deceased spouse.  Any other beneficiary is required to liquidate an inherited IRA and there are several choices available.

4.  An IRA can only be funded with pre-tax cash from wages, a direct contribution, or, with a rollover from another tax deferred account.  You cannot purchase an asset and contribute it to an IRA.  You can however, purchase  assets with the cash in the IRA.  You cannot roll over non-cash assets from an IRA. This is where the principal of the in-kind distribution kicks in.  An asset can be converted(or recharacterized) back to pre-tax cash and then become a distribution.  It is tricky and the IRS documentation on this subject is thin.  I can't quote you any IRS directives or rules on this subject but here's an article I ran across that discusses it in more detail.  Using Your IRA to Buy Real Estate (investopedia.com)