This is one thing I don't understand with PS, that everyone seems to be really hung up on this employee stock worksheet.

Did your client actually follow the Rev. Proc. to file the election both with the IRS and the employer?

If so, the employer has an obligation to withhold on and report the income on the W-2 and that would allow them to take the §83(h) deduction.

Your client should work with the employer to get a W-2C issued assuming everything is above board.  In case the employer is not cooperative and provided you are satisfied that the election should be valid, you'd then report the income on Line 7 in accordance with the election and attach a F.4852 to the return.  Needless to say there's no capital gain.