Pipe blocking drywall placement
It looks like the existing cast iron nub is the problem more than the pvc.  If you are covering in tile you can cut out a hole in your sheetrock or wonderboard this will save you 1/2 inch.  Then you can tile right over the area.  You may have to build the wall out some to do this but there is no other way.  End result will be your tile will be only a tile thickness past the nub on your finish wall.