Veteran's Disability Income Reported on 1099R as taxable; how to report on tax return

What code(s) are in Box 7?  "3" for disability or something else?

I'd contact the custodian once and ask for a correction.  If they ghost you / your client or tell you to kick rocks (they likely will IMO), then you've done your due diligence.

I'd play with the inputs on batch entry codes 4 & 74 to make it nontaxable if you've confirmed it should be.

I'd consider an 8275 disclosure to describe the issue and try to reduce the chances of a notice.  Screen 69 and google if you haven't done one before.

Tell your client not to freak out if a notice comes and send you all pages (not just the odd-numbered ones) if/when it does.

Is your client receiving both a taxable military pension, and nontaxable VA benefits?  That's possible these days, more so than it once was.  How much does he receive from both sources?  When did this change?  What is the date of the VA letter?  

"The Department of Veterans Affairs requires you to waive some section of your gross pension to receive disability compensation. This aspect means that if you receive $600 monthly, your retirement pay will reduce by an equivalent amount.

Concurrent Retirement and Disability Pay is an exemption of the VA waiver. This benefit type gradually restores your pension by eliminating the amount you relinquish. If you qualify for CRDP, VA will not deduct any amount from your pension apart from taxes. In addition, you will receive the untaxed disability compensation you are eligible for based on your rating."

https://www.disabledvets.com/resources/faqs/can-you-receive-va-disability-and-military-retirement-pay/