It's not what you and I may think or know. It's what the IRS says and generally, it's not up for debate. I can understand your situation completely. But the bottom line is, regardless of what you, I or anyone else says or does, as far as the IRS is concerned you have 33K of reportable income that if not reported on your tax return, is the equivalent of hanging a sign out that says "HEY! IRS! AUDIT ME NOW! PLEASE! HURRY! FAST! QUICK! I WANT TO PAY LOTS OF FINES, LATES FEES, PENALITES, INTEREST AND BACK TAXES!"
I don't see any way out of not reporting your income on SCH C (and possibly also on SCH E) so that you can offset the taxability of all that money (which may put you in a higher tax bracket too) by claiming and reporting your business expenses, such as the product you "sold". I'm waiting for a colleague to chime in here that may be able to help out and avoid all this SCH E and SCH C stuff. But with such a large amount of "income" reported, I do know that if you don't report it, the IRS will be knocking on your door in no time. If you received a 1099-K, then that income has already been reported to the IRS so they are expecting it to be reported on your tax return. If it's not, disconnecting the door bell won't help.
