"because they used the full amount to start a business."

With some planning, there are ways to use the IRA to start a business, but it's too late now, of course.

Tell them the source of the funds doesn't matter for starting a business. It's the use of the funds that would matter, for purposes of the business. The spending matters. Not the getting of the money for the spending.

And to be honest, you can bet a client like this won't understand business startup costs or operating costs vs tax reporting expenses, either. This should be fun...