"as if the entire distribution (Qualified Disaster Distribution Smart Worksheet Line B) is qualified"

Which it Is. It's all Qualified. That eliminates the penalty.

Then, you get to handle Tax Treatment.

"He only wants to claim $50K as eligible for deferral and spread over 3 years"

Then he intends to pay a penalty on the $45k difference? Or, are we confusing Qualified as in "penalty-free disaster reason" and Deferral as in "tax treatment?"