Just because someone sets up a corporation doesn't by definition make it "doing the business" as intended. She could have been operating as a Sched C, set up a C Corp, but never took any action that would change the business activities to "done under the corporation" at all. In other words, did she keep operating as she had been, or did she take any action that shows this C Corp was in fact in operation?

The 1120S might still be the wrong thing to do, but there is no assurance there is a C Corp doing anything, unless she did take the required actions and you can prove that happened.