Distribution code of "7" on 1099-R is being calculated as a code 1. This is incorrect.

Why are you saying it is calculating like you used a code 1 in box 7?

Is your age under 59 1/2?

Code 7 simply means that the taxable amount is not subject to an early-distribution penalty that would otherwise be reported on Schedule 2 line 8.  If you see nothing on Schedule 2 line 8, TurboTax is not treating code 7 the same as code 1.

The tax consequences of the addition to income of the taxable amount of this distribution are not determined until you prepare your tax return.  Any amount withheld for taxes is simply a down payment toward the overall tax liability determined on your tax return and is credited on Form 1040 line 25b.