Since it's a nominee distribution, she could give a 1099-K to her brother.  

Not the best solution, but not any worse than the "add it back in and subtract it back out" method.  I often wonder if that raises more eyebrows at IRS than just omitting excluded income in the first place.  

When I hear stories about IRS auditors asking taxpayers for a copy of their return because they don't have it available themselves, I don't put much faith in attached statements.  But if you are going to attach an explanation, just do it without a line entry.