Oh how heartbreaking! Poor sister. Dog bites are awful - bruising worse than the puncture.
As to the basenji, well, if AC requires the dog back, I don't think there's much anyone can do.
If they don't require the dog to be returned, your sister needs to decide what she can/can not do. I don't think BRAT will take the dog after such a bite. (I could be wrong on that, but most rescues can not take a dog with a bite history due to liablity.) Will he lash out at her basenji? Who knows, but, my guess would be not necessarily based on this bite. Dogs are better at reading dog than humans could ever hope to be. Can he be re-habed? Maybe. It's really impossible to make that sort of call over the internet. It will be a difficult sort of thing and will take lots of management. In my experiences people (be them 4 or 90 years old) are drawn to a basenji's curly tail. They want to touch it, play with it and uncurl it. Personally, I like to wrap Zest's tail around my wrist and wear it like a bracelet. So for your sister's dog, she would have to be very careful about taking him out in public. And she would have to make sure NO ONE touches his tail while he's going through re-training.
If this is his only bugaboo, I'd say rehabbing is hopeful, IF your sister wants to tackle it. She would need to consult with a professional in her area. Off the top of my head (Andrea, step in here anytime!) I'd approach it like the collar grab game where you desensitize touching the tail. Perhaps start with an assess-a-hand (put a stuffed kitchen glove on a stick). And not actually touch the tail for a long time. Just almost touch, then reward, repeat over and over.
If your sister is not up for rehabbing the dog, and really who could blame her if she decided to decline that privilege, it would be very tricky and difficult to re-home him. And the kindest thing to do might be to euthanize him. BUT she needs to make a descision for her and her family and try not to let her descision be clouded with the euthanasia. Easier said than done, I know, but that's the only way to make a fair descision for everyone involved, dog included.
Now having said all that, everyone needs to realize that stress is a cumulative thing - in dogs and people. He's been at the pound, it's noisy and scary, he's been poked, proded and who knows what else, then he got loaded into a car with strangers and they're taking him somewhere else and now this person touches his tail. When I'm having a great day and someone cuts me off in traffic, I'll think "goodness, what a jerk". But on a day when everything is falling apart, hubby's not happy with me, work was awful, I've got a list of things to do, I'm running late for an appointment and someone cuts me off in traffic, well, my thoughts/language gets a little more colorful than "gee, what a jerk". Make sense?
Please keep us informed on this and if your sister would like to come here and post, I'd love to hear from her. Personally, I'd support any descision she makes as long as it is an honest one for her. There are NO easy answers here. I wish there were.