Code G indicates that the plan believed that your husband requested a rollover to another qualified retirement account (a Roth account in this case) and the check should have been made out to the receiving retirement account (or at least the financial institution at which the receiving qualified retirement account would be held, but that's less proper) for the benefit of your husband. As such it was impermissible for the receiving institution to simply cash the check and give the cash to your husband instead of depositing as a rollover it into a proper qualified retirement account like a Roth IRA. TurboTax has no way to know that the funds were improperly diverted so it treated the code G Form 1099-R as the rollover that it indicates. TurboTax normally would include the box 2a amount in your taxable income since a nonzero value there indicates a rollover to a Roth IRA or to a designated Roth account in the company's plan. However, you apparently indicated to TurboTax the no rollover to any type of Roth account occurred so TurboTax instead treated it a nontaxable rollover to a traditional qualified retirement account by assuming that the amount in box 2a was incorrect. (It seems that TurboTax does not flag an error under these circumstances.)
It's also possible that the plan simply put an incorrect code in box 7. That would certainly be the case if the check had been made out to your husband.
It's up to you to review the tax return that TurboTax prepares to see if the amount of taxable income makes sense. Had you recognized the discrepancy when preparing the tax return you could have entered a substitute Form 1099-R with code 1, 2 or code 7 (depending on your husband's age and when he left the company providing the plan) and explanation to make the distribution taxable and potentially subject to early-distribution penalty.
Apparently the IRS recognized that a code G Form 1099-R with a nonzero amount in box 2a should have been taxable, indicating a taxable rollover to a Roth account. An individual improperly diverting a rollover check is not particularly unusual, so the IRS often questions the completion of the rollover indicated by the code G.
