In my C# code I am using TransactionScope because I was told not to rely that my sql programmers will always use transactions and we are responsible and yada yada.

Having said that

It looks like TransactionScope object Rolls back before the SqlTransaction? Is that possible and if so what is the correct methodology for wrapping a TransactionScope in a transaction.

Here is the sql test

CREATE PROC ThrowError
AS

BEGIN TRANSACTION --SqlTransaction
SELECT 1/0

IF @@ERROR<> 0
BEGIN
  ROLLBACK TRANSACTION --SqlTransaction
  RETURN -1 
END
ELSE
BEGIN
  COMMIT TRANSACTION --SqlTransaction
  RETURN 0
END

go

DECLARE @RESULT INT

EXEC @RESULT = ThrowError

SELECT @RESULT

And if I run this I get just the divide by 0 and return -1

Call from the C# code I get an extra error message

Divide by zero error encountered.
Transaction count after EXECUTE indicates that a COMMIT or ROLLBACK TRANSACTION tatement is missing. Previous count = 1, current count = 0.

If I give the sql transaction a name then

Cannot roll back SqlTransaction. No transaction or savepoint of that name was found. Transaction count after EXECUTE indicates that a COMMIT or ROLLBACK TRANSACTION statement is missing. Previous count = 1, current count = 2.

some times it seems the count goes up, until the app completely exits

The c# is just

        using (TransactionScope scope = new TransactionScope())
        {
             ... Execute Sql 

             scope.Commit()
         }