A code-8 2022 Form 1099-R with $7,000 in box 1 for a return of a $7,000 contribution means that the custodian is saying that there was no investment loss or gain. Because your explanation required to accompany your amended 2021 tax return regarding the return of contribution needs to describe the calculation of Net Income Attributable, that explanation would be in conflict with the details of the Form 1099-R unless your explanation incorrectly (fraudulently) stated that there was no loss or gain.
To be a valid return of a contribution made for 2021 the distribution must be done before October 15, 2022. That has already happened (and then some). Because the distribution was made timely there is no problem waiting until 2023 to amend.
Since the custodian knows that there was a return of contribution, as I indicated before the $7,000 distribution needs to be split between a correct return of contribution and a regular distribution, with a separate Form 1099-R issued for each portion. If not rolled over, the portion that is a regular distribution is taxable and potentially subject to an early-distribution penalty depending on your age. The portion that is the regular distribution is eligible for rollover, so there is time to undo the error, but doing so will require either getting the custodian to report the distributions of the separate portions correctly or you will have to file substitute Forms 1099-R showing those corrections.
(The fact that the custodian messed this up to begin with suggests that they might not have the skills needed to make the reporting correct. What did they think was the point of doing the NIA calculation if they were just going to distribute $7,000 anyway? The fact that there were losses suggests that the IRA was with a brokerage rather than a bank and I would expect a brokerage to have a system in place for automatically determining the correct distribution amount for a return of contribution so that this sort of error would not be possible.)
