To be clear, you are not repaying the loan. The loan was paid off by the offset distribution, so the loan no longer exists. As you stated, you now have until the due date of your tax return, including extensions, not just 60 days, to roll the offset distribution over to another qualified retirement account such as an IRA, assuming that you can come up with the money to do so.
I'm not sure what "issue" you are talking about. If you received a code M Form 1099-R and you roll over some or all of this offset distribution within the allotted time (by October 15 of the following year as long as you timely file your tax return or a request for filing extension), it's reported as a rollover the same way that any other eligible rollover is reported. In the follow-up to entering the Form 1099-R, indicate that you moved the money to another retirement account and indicate the amount that you rolled over. TurboTax will include the entire gross amount of the offset distribution on Form 1040 line 4c but will exclude the amount rolled over from the taxable amount on line 4d. TurboTax will also include the word ROLLOVER next to line 4d.
