I agree with @LudwigVan_fan in that I would recommend reporting the amount on the 1099-K and adjusting the amount in CGS to agree with your books and records.
I also agree it is in your best interest to be persistent in following up to determine how that amount was determined. Once you understand this, you can determine the next step(s); impact for 2021 and going forward.
While the 1099-K is an informational return, so are the following:
Form W-2 (series, excepting Form W-2G)
Form W-3 (series, excepting Form W-3(C)PR)
Form 1096
Form 1098 (series)
Form 1099 (series)
Form 5498 (series)
Just because it is an informational form does not mean you can ignore what is being reported. Avoid any letter writing campaigns with the IRS. You minimize this by reporting the amount on the 1099-K.
This taxpayer is not reporting "phantom" expenses. This is an adjustment to what the taxpayer states is what his actual sales were. No different than making adjustments on Schedule D. This is not any adjustment invented for fraud or something that doesn't exist. The taxpayer is stating that they believe the amount is incorrect and they have financial records to prove the amount being ultimately reported is accurate.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
