Yes, Jeannette, the instructions read just the way you quote. However, there are a number of areas in which a choice made in one year cannot be revoked in the next year. The instructions don't say anything about this either way. It's not that you can't do it, it's that TurboTax took the literal instructions in for the 8889 and Pub 969, which refer to forms and line numbers in the prior year return that you filed, and coded the software that way.
There are always going to 1,00,001 things that fall between the cracks because the IRS has never gotten around to discussing one particular situation. But TurboTax is not in the business of guessing how the IRS would interpret this - it has to take the literal path that is easy to justify because it's in the instructions.
In this case, if you want to take this position that your action of amending the prior year return to reduce your tax on the premise that it's not forbidden, that is absolutely OK for you to do. But TurboTax has to code for what it knows is right, not what it infers might be right. Thus, there will always be some things that you might think that TurboTax should do, but TurboTax chooses not to.
In many cases, TurboTax allows you to override its computations in the desktop product but it can't in every case. If nothing else, TurboTax must generate a tax return that is acceptable to the IRA when it parses the XML data file upon receiving the e-file, so it prevents certain overrides even when the taxpayer wants to do it.
And believe me, we discuss issues like this often.
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