@Yofanny19 

The IRS has the method for how to attribute the gain or loss to a specific contribution amount. Read this article:

https://www.investopedia.com/net-income-attributable-definition-5223368

"the value of the account later increases and I’m in the positive am I then penalized?"

That's not what is going on for your taxpayer. The disallowed amount has gain or loss, just like any investment. A disallowed amount that has gain means there is taxable income. A disallowed amount that has loss, means there is no income to tax. But the process that is disallowed means there will be penalty, because it was the wrong thing to do. If it is for 2022, the corrective action can be taken by April 18, or the due date of the extended return, and it's as if the error never happened = no penalty for the disallowed contribution.

Are you using ProSeries for your clients' tax return? If not, you are lost on the internet.

You’ve come to a Peer User community for Intuit Income Tax Preparation products supporting tax preparation professionals using ProSeries, Proconnect and Lacerte Tax Preparation programs, and you may be looking for support as an individual taxpayer using TurboTax. Please visit the TurboTax Help site for support.

And try this screen, for the various topics (subforums): https://ttlc.intuit.com/community/discussions/discussion/03/302

Your sign in user info here is the same one you can use over at the TurboTax forum.

Thanks.