"So, is this an irs issue, or a turbotax programming bug?"
It's a disconnect between what the IRS is now expecting and what TurboTax is providing and has provided for many years. To me it would make sense for TurboTax to make the change to accommodate the IRS, but that isn't necessarily how it will be resolved. The change that TurboTax would need to make would be to add the amount from Form 5329 line 43 to Form 8889 line 2 instead of line 13.
At present, the only way to be able to use TurboTax to file without the IRS flagging a problem would be to use the CD/download version of TurboTax to override line 2 of Form 8889 and add the amount from Form 5329 line 43, then override line 13 of Form 8889 to subtract back off that same amount, then print and mail the tax return.
