In this instance ML is correct. The two 1099-Rs reflect the actual amounts received in 2021 and 2022. You have already sent in the 5329 requesting the penalty waiver and you timely withdrew the excess as soon as you discovered the error. But the excess was withdrawn after the December 31 deadline and if ML adjusts the 1099 they will be showing withdrawals that did not occur in the calendar year.
So you should not adjust the 1099 for 2021 or for 2022. You will have a higher income in 2022 to reflect the reality that you received more money in that calendar year. The same is true in 2021. The 1099 reflects the reality that you withdrew less in the year than you should have.
The 5329 that you filed needs to be filed separately for each year effected by the issue, by the way. You don't mention whether this issue is a multiple year issue.
If the IRS comes back to you and refuses to waive the penalty for whatever reason and the error was definitely your broker's then I would approach them to cover your fine.
But use the actual 1099-R for each year. The IRS is matching those from year to year. If the forms were corrected there would have been no need to file the 5329 with the IRS.
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