The Roth conversion of the RMD is a failed conversion and constitutes a regular contribution to the Roth IRA which was subsequently returned. To get 2022 TurboTax to include the required explanation statement with you MIL's tax return you can enter the 2023 code JP Form 1099-R that your MIL will be receiving next year. This Form 1099-R will have $26k in box 1, $0 in box 2a and codes J and P in box 7. When 2022 TurboTax asks, be sure to indicate that it's a 2023 Form 1099-R. Because there was a loss in value, the taxable amount of $0 is not subject to any penalty. After entering this Form 1099-R, TurboTax will prompt for the explanation where you'll provide the same details that you provided with the question that you posted here. Because the excess contribution was properly corrected before the due date of the tax return, no Form 5329 is required.
When your MIL actually receives the code-JP 2023 Form 1099-R next year she can ignore it because the explanation provided with the 2022 tax return takes its place.
