"registered herself as a host and received a 1099 from Airbnb. How do you think this situation will play out, she can not deduct the expenses (taxes, repairs, insurance, etc) because she is not running the business"

In my town, you can rent property, then manage it on AirBnB as income-producing. So, someone made all the tax and interest payments and someone collected rent and someone changes the sheets and does the laundry and takes out t he trash. If all of that is her, she is running a business = Sched C. If she gives him rent or part of the rent or the profit from the operations, that still is rental income to him, but he's not running the business.