Hi George and welcome to Just Answer!Refund of a previously paid amount would be taxable as long as that amount was not deducted on the tax return in the year it was originally paid.In this case - reporting such refund on form 1099MISC seems incorrect - and that was the reason of following treatment.Based on your information - the tax preparer simply followed reporting and did not object the fact of issuing the form 1099MISC.So - if you plan corrective actions - the first step would be to contact the payer and request a correction for the form 1099MISC.
Here are recommendations provided by the IRS - see instructions - http://www.irs.gov/pub/irs-pdf/f1099msc.pdfpage 5 - Form 1099-MISC incorrect? If this form is incorrect or has been issued in error, contact the payer. If you cannot get this form corrected, attach an explanation to your tax return and report your income correctly.So - after contacting the payer - you would need to amend to amend the tax return. If the payer will agree to correct form 1099MICS - you may simply attach a corrected form to your tax return and provide a short explanation on form 1040X.If the payer will not correct form 1099MICS - you will attach a separate note with explanation and may also attach additional documents to support your position.Please be sure to amend a state tax return as well.