"The brokerage house (correctly it seems to me) withheld taxes on roughly half of the gross distribution, which is logical because the Code permits a once in a lifetime funding of an HSA from an IRA that is not subject to taxation."
Why do you say this? A proper Qualified Funding Distribution (QFD) (IRA to HSA) is not taxable at all. Was the distribution larger than the IRA to HSA transfer?
It is OK to do a QFD from an SEP-IRA so long as the SEP-IRA is not ongoing.
The IRS says,
"A qualified HSA funding distribution may be made from your traditional IRA or Roth IRA to your HSA. This distribution can’t be made from an ongoing SEP IRA or SIMPLE IRA. For this purpose, a SEP IRA or SIMPLE IRA is ongoing if an employer contribution is made for the plan year ending with or within the tax year in which the distribution would be made." See page 7 in Pub 969.
So if your SEP-IRA were not ongoing, I would expect a good result, which you seem to have gotten.
An inherited IRA is a different matter, as you know.
"amounts seem like they need to be "manually entered" on 1099R and 8889-T and possibly elsewhere within turbo-tax. "
What amounts are you talking about?
While you are getting back to me with this questions, you might consider this: breaking the 1099-R up into two 1099-Rs, one that is solely for the QFD, and the other for whatever amount in the distribution did not go to the HSA.
See if that works more satisfactorily.
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