The IRS says:" Do not include merchandise you receive on consignment in your inventory. Include your profit or commission on merchandise consigned to you in your income when you sell the merchandise or when you receive your profit or commission, depending upon the method of accounting you use." See IRS Publication 334, Chapter 5, page 25.
But this doesn't consider that you are receiving a 1099-K from the credit card companies, and those transactions are reported to the IRS as if all of it is income to you. I'm sure that the passage I quoted was written before 1099-K's existed, and hasn't been updated.
So in order to back out the consignment income that isn't yours, you could either include it in your Cost of Goods Sold or claim it as an Other Expense and specify what you are claiming. IRC Section 446 says that "Taxable income shall be computed under the method of accounting on the basis of which the taxpayer regularly computes his income in keeping his books." As long as your method is consistent (you don't change it every year) and accurately reflects your income, the IRS will accept it.
If you don't report the entire 1099-K you will likely be contacted by the IRS and have to explain why not.
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