I think you have a mixed perspective.

You have disability payments; not Social Security benefits.

You have a note for "amount paid" which is paid to her. You are trying to deduct something not in Box 4, which would show repaid by her. That's why Box 5 would be a Net.

It seems she got an additional amount in 2017 that was for 2016.

You didn't state when she repaid that amount.

"I assume they deducted it from the 28,868.00."

You don't make any assumption. You follow the reporting.

"So should I prepare the return without the 11,528.00 in box 4"

If it's not on the form, you won't report it as if that is on the form.

"The letter from the IRS has deducted the $11,528.00"

Deducted from something; or, just not showing it, since it is not for 2017?

You can't mix perspectives. It won't make sense.