Replying to my own question
Here is the solution. First it is important to enter the amount as a distribution because this moves the income to Sch 1 Line 8t and out of the 1040. No effect on the calculation but this is what the IRS wants.
So in the Forms view you can enter FC for the state code and the amount, this works fine and eliminates the error.
You can also select Foreign Country or US possession from the state dropdown in the Easystep view (last option below all the states). I did not know this was there, I put in in the Forms view as FC and then retried the Easystep and that is when I saw it.
Hope this helps someone.
