"I looked on the 8915 and saw nothing pertaining to the early withdrawal penalty."

Because it's on the 1099-R worksheet. But you also need to pay attention to Partial Disaster, and part is Not.

"The only thing that I could think of was to change the code on the 1099-r from 1 early distribution to code 7 ordinary distribution but wouldn't want to create a situation with IRS."

You don't make that change. You have already been presented with a 1099-R. You didn't originate it and you don't change what was presented on it. You deal with what happened because of that distribution.

You should have early penalty on the $20k, which is sad and doesn't need to be part of that taxpayer's costs at all.