I can't thank you ladies enough for you candid thoughts. Its what I was thinking as well but figured since Im so close to the situation that outside advice would be great to get!

My bro and SIL do not want him held back. I am passing along all of your advice so that they can hopefully handle this the best way for their son.

Re: kimck's response:
"It would be interesting to know what the change was that made him slow down academically this year? Was he at a Montessori for kindergarten? Did he go from 0 to 2nd grade reading level in kindergarten, or was he reading before kindergarten?"

He was at a christian private school last year. They moved and he went to a charter school this year. It is concerning that he slowed down, even went backwards, academically after changing schools.