1099-C for student loan

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Hello!  I have a new client who received a notice from the IRS in connection with the under-reported income pertaining to Form 1099-C.  Her grandmother was the co-signer on the student loan and in 2020 they entered into a settlement with the lender and portion of the student loan was forgiven.  Grandmother received 2020 Form 1099-C and included it on her 2020 tax return and paid the related taxes.  Apparently, the granddaughter was also issued the form (which she didn't receive in the mail and accordingly, didn't report it on her 2020 return).

From what I've read, the student/granddaughter was the only one who was supposed to receive and claim the 1099-C on her tax return.  They had to contact the lender to ask them to issue a corrected form 1099-C to grandmother.

The question is - 1) do we Amend the granddaughter's return to add the omitted 1099-C and then subtracting this amount as "Adjustment to Income" with an explanation that it was already reported by grandmother  Or 2) report the form on granddaughter's return and ask the lender to issue Corrected zero 1099-C to grandmother and then Amend grandmother's 2020 return with an explanation that the granddaughter is reporting this on her return.

The granddaughter will require an amended return in any scenario, as there was additional information that was omitted from her original return besides the 1099-c in question.  Insolvency is not an option here.

I will be contacting the IRS tomorrow to see if they have some guidance on this.  Wanted to know if anyone had encountered a similar issue and if scenario 1 is acceptable solution (just to amend the granddaughter's return and leave grandmother's "as is".  Grandmother was ok to pay the additional taxes).

Thanks for your input!