Whenever you convert a Traditional IRA to a Roth, it is a taxable event because you are converting pre tax dollars into after tax dollars. When entered as a rollover code G, it will not trigger this as a taxable event.
A more appropriate code would be a code 2, which will make this distribution taxable. I would change this on the form and if questioned by the IRS, you can state that your Administrator for the 1099R miscoded Box 7 and that they refused to reissue the 1099R.
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