Technically, you had access and ownership of the money in 2023. This "technically" means that it should be included on your 2023 return. However, since the money was paid back, you would then be able to remove it on your 2024 return.
Since you already paid it back, you can do as one of the CPA's suggested and attached a detailed statement of what happened without including the $7,000 on your return. Since they withheld the 10% penalty, you will not be able to straighten it out without an explanation.
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