How does water get into a merc trans (TRS drive)and push out the ATF. the transmission was full of water. I removed and pressure tested the cooler and it is tight. Any thoughts?

It's typically from the cooler unless the boat was sunk. When you say you removed and pressure tested the cooler, did you remove the cooler that mounts to the trans case or is it fitted with a remote inline cooler?

I had the same problem a 2 years ago. I pressure tested the cooler, had the tranny rebuilt, put it back in and all is fine. The only thing I can think of was when I was out in Lake Michigan drifting around the waves coming over the back of the boat leaked down the back of the hatch on top of the tranny vent and that is how they ingested water. It doesn't take much water to whip up the tranny fluid.

I'm still a little baffled.

I removed and pressure tested the cooler that mounts to the transmission case. I did have the engine and trans out this winter. What does the barb fitting at the back of the trans do? Is it a vent? I just reconnected the hose that seemed to be the right length but may have connected something incorrectly. I did have a heat exchange blow out and filled up the bilge which submerged the tranny but had drained and refilled the transmission fluid since that happened. This seems like water that is pressurized is filling the transmission and blowing the ATF out he fill hole into the bilge. What is going on Here?