You are right. I'm not a tax expert so I should probably stay quiet. I was just trying to show that using Box 1 does not always work, and can actually be quite terrible for some people. I am looking forward to hearing the result of that discussion.
A quick internet search says that a 1099r is not provided for trustee to trustee transfers. It is generated for approved employer plan distributions(rollovers), or if the IRA owner takes a distribution himself and rolls it over into another IRA within 60 days. I think both cases result in distributions on the 1099R that are not taxable income. That is all I was trying to show, and I did use an unclear example.
