"FYI - When this gain is taken out it would actually equal a LT Capital Loss. "
I really don't understand this sentence nor its relevance. Are you saying that if you subtract the capital gain created by the sale of the QSBS from the amount reported to you as Code I on line 11 of Schedule K-1 that the result is a loss? If so it would seem like you'd simply report the loss "as is" and then report the LT Capital Gain on the QSBS separately to take advantage of the tax break.
I'd guess TurboTax can't handle this through the Schedule K-1 interview and you'd have to report it separately using the "Stocks, Mutual Funds, Bonds, Other" interview. But since the stock wasn't held for more than 5 years I don't think it qualifies for Sec 1202 treatment. The best you could have done, I'd think, is defer the gain be reinvesting in another stock that would get the Sec 1202 treatment.
