The Show Inactive option is not available for the Working Attorney Filter and Inactive Timekeepers are not available in the Working Attorney Filters for reporting. 

WORKING FILTER

The report parameters themselves allow you to include Inactive Timekeepers in the reports but due to licensing you cannot report on individual Inactive Timekeepers (as working attorneys).  If you need to report on a Working attorney individually, the attorney must be set to an active status in the User record.  You can, however, access the Include Inactive option when filtering by Originating, Responsible, Managing or Project.  The purpose of allowing this filter is so you do not have to scroll through many Timekeepers to pick and choose the one or two attorneys you may want to report on for Responsible, Originating, Managing and Project.  

ORIGINATING FILTER