Well, two possible things:
1) If it is a military retirement 1099-R, you cannot take both the Military Retirment, AND the Bailey retirement deduction. Just one or the other.
2) if it is not a Military 1099-R, then when you enter the 1099-R form in the Federal 1099-R area, make sure you enter the state distribution amount on the follow-up page after the main form with all the boxes....but that NC Distribution amount cannot be greater than the box 2a value
.........or if box 2a is blank, or marked as "Undetermined", the NC distribution entry cannot be greater than the "Federally-Taxable" amount of box 1 on the Federal tax return.
i.e. the NC Distribution....and thus the eventual Bailey deduction cannot be greater than the $$ amount that was included as being taxable income on the Federal 1040 in the first place.