I don't understand Part III of Form 8889. I was an "eligible individual" for the entire year of 2014. I believe this requires me to input $3300 on Line 18. Is this correct? I had $297.78 gross distribution of my HSA. I believe that this than requires me to file $3597.78 as additional taxable income? I don't understand the logic. Can someone help me understand? Thanks in advance!
(Entering in answer from comments as community wiki answer so that this question can be marked answered.)
As per the instructions of form 8889, Part III is only filled out if the penalty for failure to maintain HDHP coverage applies. If it doesn't apply to you, the Part should be left blank.