Correct, this is 2023 income reportable on your 2023 tax return when you receive the 2023 Form 1099-R next year.
For what it's worth, you are correct that there was no 10-year deadline for completely draining the IRA. That deadline only applies to IRA of decedents dying after 2019. But what's done is done and cannot be undone.
Failure to take the RMDs required for 2021 and 2022 is subject to a 50% penalty on the amount required to have been distributed unless the IRS waives the penalty upon your wife requesting such a waiver by following the guidance at the end of the instructions for Form 5329. There was no COVID waiver of RMDs for 2021, only 2020. Explanation that failure was due to reinstate annual RMDs after turning them off for 2020 would seem to be a reasonable cause and with the account now having being fully drained, the IRS would almost certainly grant the waivers.
