Is this on the internal drive or an external?
I don't know if it would cause the problem you are seeing, but I wouldn't format the startup disk as encrypted at all.
Once you've installed OS X, go to FileVault and turn it on.
If you are trying to format an external, use the partition tab, select the hard drive (not the volumes) and set it to 1 partition.
If you are using the internal drive, you can do the same, but you must be booted into something other than that drive, like Internet Recovery.
This will erase the built-in Recovery partition, so you need to have another method of booting, like Internet Recovery.