"This is even after being given the "good news, you don't owe any taxes""
That's not what TurboTax said. TurboTax said that you don't own any "additional" taxes, referring to early-distribution penalties as an additional tax. (The 10% early-distribution penalty is an excise tax.) This is being indicated by the code 2 in box 7.
If funds remain in the individual's traditional IRAs at year-end, not all of the basis can be applied to the individual's traditional IRA distributions, including Roth conversions. Some basis remains to be applied to future distributions from the individual's traditional IRAs.
