I found a much easier way to resolve the problem which I regard as a bug in the software (see below). I simply removed the K-1 form as if it had never been there. Then I ran a Smartcheck to be sure everything was fine. Then I re-entered the information and followed prompts NOT requesting a deferral of self employment. Smartcheck worked fine and did not flag anything.
The bug in the software is that if you enter the K-1 form info as one of the first forms in the system before Turbotax has determined your final tax liability, there is a problem if you ultimately are due a refund. The software informs you that because you are due a refund, you are not entitled to defer SE. It then says fixing the forms accordingly. Unfortunately it leaves a "0" in line 11 under "Deferred for Certain Schedule H or SE Filers Smart Worksheet rather than leaving it blank since line 10 is a negative number. The error reported is that line 11 (which is "0") "is too large". It is possible that during the course of entering data you may have owed taxes and at that time Turbotax calculated what portion of SE that could be deferred.
