"He obviously wants to give her a 1099, which she was originally ok with doing until she found out she would owe a small amount of tax by doing so."

Wahhh; cry me a river.

The provision of using "only his own money" seems odd. We all have only our money, no matter what the original source of it was. Once you inherit money, it is added to your money and it is yours.

"My clients father passed away a few years back"

"from funds that were in the estate"

Were? Are? It's not clear if you are describing an Estate or a Trust. How long is the Estate staying open and unsettled?

"she will receive the commercial property immediately and my client will get nothing, including being forced to move his business and she will immediately kick him out due to the usual discord after estates are handled."

These people have never heard of Leased Property, then? A commercial property that is not occupied becomes pretty expensive to maintain.

Of course he can take a business expense on his taxes for costs incurred for the location of his business. Of course any rent payment to someone for business occupancy is a business expense and of course it would be reportable. It isn't clear if he should be paying that person and reporting it as such, or paying the Estate?