Is an early distribution from an IRA that I have to pay taxes and a penalty on considered selling mutual funds?

No.

IRA distributions are taxed as ordinary income (and the penalty is extra).

 

I do not know what you mean by "considered selling mutual funds", but I suspect the answer is "no". Your question sounds to me that you wondering if an IRA distribution is the same as selling after-tax mutual funds, and the answer would be no.

 

This is true even if the entire IRA distribution distribution used to be invested in mutual funds within the IRA.

 

Where do you see this reference to "mutual funds"? Is it something you see in TurboTax?

A distribution is a distribution and that's that.

Unless it is an RMD.

Unless it would have been an RMD but for the CARES act.