Thanks Kathy. I remember researching Form 8606 back in Aug/Sept and that was my understanding as well. What you said made sense so I thought that would be the answer.
I do appreciate your help. There is a reason the IRS is asking for a Form 8606 and I believe they just don't understand what happened.
It appears on the paperwork to remove the excess contributions the bank moved it into a Non-IRA account which could cause other problems.

Client already got the 90 day letter. I am sure I could clear it up but they want to handle it for some reason.