The standard tools for merging with source files in Visual Source Safe, and then TFS, have always been rather poor - they are often confused by the simplest changes, they often find identical files as “changed”, and the auto-reset frequency often fails (includes incorrect changes). I quickly learned about the distrust of these merge tools (around 1995) and since then I have not seen any evidence in any new releases that the kernel merge algorithms have been improved at all.
The good news is that you can replace client-side merging tools with third-party ones (I use one that works so well that I really trust its automatic merge option). I once spent 2 days trying (and failing) to make a difficult merger with TFS tools and, in the end, buy this third-party tool and re-earn all the merge in 15 minutes!)
The bad news is that the first step of merging branches simply uses the TFS merge code, and therefore it is very confused, which led to the symptoms you described. This disappoints such a key feature of such an expensive application, because it spends a lot of time for the programmer on each merge to fix imaginary “conflicts” - on the positive side, using third-party tools, as a rule, it is very easy to reliably resolve these merging problems.
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