Thank you David,
After some considerable spreadsheet gymnastics, I figure out that the market discount was already included in my 1099-int under line 3. So I feel safe to adjust use the "I need to adjust the cost basis" and enter a negative adjustment with code D. This makes my gain/losses work report correctly, and I am not underreporting income as it is already reported.
I don't know if that is the right way to do it, but it does seem to work and faithfully reports my investment income. It also ensures I am not paying state tax on US treasury interest.
