Damage control-determine how much tax your client should have paid by reporting the income(less expenses). Let's say $10,000 federal.

Determine how much extra the old owner paid due to his own error by reporting your income. Pretend $11,000.

You pay him $10,000, which should have been your tax. He loses $1,000 due to his own error; that's not your problem.

The IRS can not put the income on your return, but you end up in the correct place.

(If his tax cost was only $9,000 instead of $11,000, reimburse him $9,000, saving YOU $1,000, again due to his error. Not your problem. He loses nothing due to his own error.)