Yes a conflict between the IRS Pub 550 and TurboTax instructions. I'll assume that the 1099-B you got does not already reflect the disallowed loss. The IRS publications, per at least 1 court decision, have no official standing. However, this situation was different. The PUB said X, but the code said Y. The taxpayers relied on the PUB. The court said in effect, "Too bad."
can't say which of these is best. Either increase the proceeds, or follow Form 8949 instructions, which probably have no more official standing than the PUB:
You have a nondeductible loss other than a loss indicated by code W(wash sale)
use code L (column (f)
Report the sale or exchange on Form 8949 and enter the amount of the nondeductible loss as a positive number in column (g).
