So I got the answer from ESRI Software Support. This is a known bug.
When using the tool or scripting, typing in the the username.version_name will work. I have tested this in both the gp tool and in python scripts, works successfully even thought in the tool these versions were not in the drop-down list. If you are not sure, in ArcCatalog, connect to the GDB, right click and view Versions.
Version Name = "USERNAME.VERSION_NAME"
Target Version = "sde.DEFAULT" or "dbo.DEFAULT" or in my case "dbo.QAQC"
*** If you are using Windows Domain User Authentication, the syntax for the Version Name is:
"DOMAIN\USERNAME".VERSION_NAME You MUST use the quotations for the "DOMAIN\USERNAME"