To the OP: I think you'll find that there are a lot of people on this forum that would tend to agree with you -- particularly the "old school" folks who have made a living doing this for years. They get VERY irritated when NooB's buy a DSLR at Best Buy, shoot for a week or 2, get accolades from friends and family on their Facebook posts and think "this is easy! I'm going to shoot for profit!"
As Medic indicated above, there is at least 1 of these posts weekly on the forum. I think those of us who are on here regularly are so sick and tired of responding to these types of threads that we take the "Eff It!" attitude and say just stay out of her business.
It's not that we don't get what you are saying--we just have reached the point of no longer caring.
I don't know, I don't think it's even that we've reached the point of not caring. For me, at least, it's more than I've reached the point in my life where I am getting better and better at that whole "grant me the serenity to accept the things I cannot change,
Courage to change the things I can,
and wisdom to know the difference" thing.
OP: This is not something you can change. If you are determined to try, I hope that you are not TOO attached to this friendship, but it is almost certain to end badly.
For those of us who've considered "hanging out the shingle" but don't do it, it can be irritating as all-get-out to see someone who doesn't even understand the basics of their camera hop onto the Pro bus. But--it's really NOT something WE can change. What WE can do is concentrate on our own skills.
If her skills are that bad, and yet people hire her...well, unless she is misrepresenting herself by posting photos that aren't hers, they should be getting exactly what they signed on for. It might be irritating, but such is life. The day I started my FB photography page (not a business, just a "showcase" for my photos really, a way for people to "like" my photography without me having to actually friend them personally), a "friend" (the mother of a good friend of my son, actually), "liked" my page and within an hour, had her OWN page up of absolutely terrible pictures. Within two days, she had more "likes" on hers than I had on mine. It was highly irritating...and completely out of my control. I just ignored it and went right on concentrating on MY page. I haven't seen her post anything in weeks now.
The tax thing, well, that's a little different, BUT it's still largely out of your control. What *I* would do, if I were you is simply start a conversation with her, something along this line:
So, you're starting a photography business. Wow, that takes courage! I hope it goes well. Let me ask you a question: I'd love to start a business myself someday, when I'm ready, but one thing that holds me back is all the legal stuff--so maybe you could help me. What did you have to do to get the business license, and how did you know what to do about the taxes and IRS stuff? Did you hire someone to help you figure it all out?
In other words--ask her "advice" as if assuming she must KNOW these things, because after all, she's "done" it. (yes, it's called Passive Aggressive behavior. I'm good at it, and it may get knocked a lot, but it WORKS.

)
If she poo-poos it, and says something like "Oh, I don't think that's really a problem. I'm just doing this on the side and don't plan to make all that much" or whatever, THEN you can express the "But aren't you a little concerned about what could happen if the IRS finds out? I've heard horror stories about how cities, states and the IRS are finding people in "under the table" businesses through their FB pages or other online presences and then coming after them. I think it would just make me too nervous to go into business without having all that set up.
Now, you've expressed your concern, and maybe planted a seed that perhaps she SHOULD look into making things legal. If she still does nothing about it, then she doesn't CARE if she gets caught. So, why should you?