"When the company pays back the shareholder for his contributions that were reported as APIC, can that amount be reported, not as a distribution, but as a reduction in the shareholder's APIC account without raising red flags?"

No. You don't reduce APIC for distributions. Distributions reduce retained earnings, maybe making RE negative. They reduce AAA but cannot make AAA negative."

"The $200K amount the shareholder contributed in 2021 would be reported on the Basis Info Wks as Stock/loan contributions under the Stock Basis column. Accordingly, this amount would increase APIC on the Schedule L balance sheet since it isn't reported on Sch M-2.

As Jeff pointed out, this would increase the shareholder's basis."

Correct.