"550 5.1.1 User unknown" Error when Sending to a Distribution Group

If you receive an error when sending to a newly created distribution group: "550 5.1.1 User unknown", you have to take the following steps to resolve it:

1) Exchange 2010 automatically sets the attribute Require that all senders are authenticated to enabled by default. Open Exchange Management Console and navigate to Recipient Configuration -> Distribution Group. Right click on the desired distribution group and select properties.

2) Select Mail Flow Settings -> Message Delivery Restrictions and click on Properties

3) Uncheck the "Require that all senders are authenticated" box: