What TurboTax said was that there was no "additional tax" due. The "additional tax" is a 10% early-distribution penalty, and excise tax. TurboTax displays this message simply because the From 1099-R has a code 2 in box 7. This message confuses MANY users.
Entering the code 2 Form 1099-R should result in the entire $17,000 being included on Form 1040 line 4b unless you have basis in nondeductible traditional IRA contributions and you have a lower taxable amount calculated on Form 8606 as a result. If you have basis in nondeductible traditional IRA contributions, be sure to click the Continue button on the "Your 1099-R Entries" page (CD/download version of TurboTax) or the "Review Your 1099-R Items" page (online version) and answer the questions regarding your basis and your year-end balance in traditional IRAs.
