How to correct a tax return if the 1099-K was not under their tax ID?

Did the new owner keep using the prior owner's bank account or how did the new owner get paid?

Contact the issuer of the 1099-K and correct it and any future occurrences. Get a new W-9 signed by the new owner and submit it to move the account. Definitely bill the client for this advice.

Alternatively submit evidence that the new owner did report this income - give the full name and ID number of the entity that reported the income. 

Definitely get the credit card company the correct information for 2026.

A Simple solution would be to amend the tax return of the taxpayer that sold the business.  Put the 1099K on as income and then write a very descriptive explanation for an other expense category for the same amount of money.  It zeros the 1099K

Very doubtful the credit card company will amend and fix the 1099K. 

IRS letters are usually pretty good about telling you what to do if you don't agree with the proposed changes.  What does the letter tell you to do?

Problem is, often the clients like to just send us page 1 of 6 and ignore pages 2-6.  I once had a client fax me pages 1, 3 and 5.  I had to call them and tell them to flip the stack over and fax it again.  Or worse, they ignore the first 3 letters and only send us the letter that says Statutory Notice of Deficiency or Intent to Levy (often insisting that this is the first they're hearing about it).

To answer the question "How can this tax situation be solved?" we need to know which party is your client and what letter you're responding to.

Unless you are the tax preparer for the old owner, I don't think this is your problem.  If I was the old owner's tax preparer, I wouldn't be playing switcheroo on a schedule C to report income and then "unincome" it with an expense.  Sometimes the best way to deal with the problem is to lay out all of the facts to the IRS including telling them that your client wasn't bright enough to know that you can't just start taking people's credit card payments unless you have actually have an account of your own.  Using someone else's account never works out well.  And as a side note, if this was for 2021, expect the old owner to receive a few more notices in the future.

and as a side-side note...."filed taxes using that 1099-K", scares me even more.  So many people think that all they have to report is/are the amount they get a 1099-? for. The new owner did not have any cash receipts? checks receipts?

are both clients of yours?.......