On reading level alone, I think they have no right to hold this poor little guy back!? I volunteer with the first graders every week. I don't think your nephew has cornered the market on immaturity.
My DS has an October birthday and is a full year older than this little guy. He was reading where your nephew was a year ago. Now he reads 6-8th grade level novels with excellent comprehension. That's where this poor guy could be in a year's time! I can't imagine making him sit through 1st grade AGAIN because he doesn't fit into some social mold that they think everyone should fit into. It's probably bad enough to do it once. It doesn't sound like his needs are being met in that environment.
You are a wonderful aunt for being concerned and taking this on! It definitely sounds like he should be assessed ASAP. He sounds like a very sweet little boy.
