Unfortunately, this is a consequence of how withholding is treated differently from estimated payments. Income and withholding are both assumed to be spread out over the year, even if they are not, but payments are made on the date made. This means that if you make a withdrawal late in the year, and make a payment, it will look like you under paid your taxes over the earlier part of the year.
By using form 2210AI, you can show the IRS that when your income is viewed on a quarterly basis, you made the appropriate payments. I would prepare the form and send it to the IRS in response to your penalty letter.
In the future, you could have the taxes withheld from your conversions by doing an indirect rollover, where you get a check (or electronic deposit). For example, if you withdraw $10,000 and have $2000 withheld, IRA #1 will send you $8000. But you are still allowed to send the full $10,000 to Roth IRA #2, which allows you to make up the difference from other money. The only catch is you can only do this type of indirect conversion once per calendar year. Or, do your conversions in the first quarter of the year, and then pay the tax all at once or in 4 equal quarterly installments.
