Two possible scenarios for this error are....
1.) If this error is received when trying to send to a local Imail user account it is possible that a domain alias is needed.
Open the domain properties for the domain in question, then locate the domain aliases field.
Enter in the needed domain alias here for this domain, i.e. domain.com would be a alias for mail.domain.com. The domain alias field allows you to define additional hostnames that the IMail domain will accept mail for.
Make sure to stop and restart the SMTP and Queue Manager service for this change to take effect.
2.) If this error is received when a message is sent through your Imail server to a remote location.
Make sure your mail client is set to do SMTP authentication ("My outgoing mail server requires authentication").
The "Mail Relay Option" that you have selected prevents IMail from sending your message to that address.
In SMTP Security (IMail Administrator | localhost | Services | SMTP | SMTP Security) you want Relay for Addresses. List the IP addresses (and/or subnets) that you want to Relay Mail For.
No Mail Relay is also a secure setting.
Note that it is necessary to stop and restart the SMTP service after the change. You should also stop and restart the Queue Manager service.
Users who send from IP addresses that you do not list must set their mail clients to do an SMTP login ("My outgoing mail server requires authentication").