"I think I know how to account for the taxes withheld in case of a rollover."

You told us he Grossed up his deposit.

"I will report "gross", box 1, report all the taxes withheld, and then "G" for the code and nothing for "taxable amount", box 2a."

Only if that got Rolled over per the definition of Rolled over.

"But the question remains: what to do with the amount already grossed up? He probably should withdraw the excess(taxes) before the due date of the return."

It's only excess if he put in too much as Contribution.

Once again:

Did your taxpayer Roll Over, or make a Contribution?

Rollover is the movement of money. It is not taxable, there is no such thing as Excess, it is not limited.

Or:

Contributions are based on earned income, on age, may or may not be tax deductible (the opposite of taxable), depending on the retirement or employer plan and account there might be matched funds, there are contribution limits and eligibility and qualifications, etc.

Look: you don't seem to be the preparer that did this last year, but you told us: "and Fidelity does not want to deal with this and just distributes the money (as a check, with federal and state taxes withheld) in December. The client then turns around and deposits the whole amount (adding the taxes withheld) to a Schwab IRA."

So, what is the activity? Look at last year. Is it supposed to be handled the same way?

And it's time to take some continuing ed on retirement account and benefit plans.