If your mother (or you if she was your dependent) deducted any of the money paid to the nursing home, as medical expenses, on previous year returns; then some or all of that refund is, indeed, taxable income.
Otherwise, If you received an erroneous 1099-Misc, You have several choices:
1. Ideally, you get a corrected 1099-misc from the payer
2. Don't report it on your return. Attach a copy of the 1099 and a statement explaining the circumstances. You can't e-file. From the IRS instructions for form 1099-Misc: 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.
3.. Report the income as misc line 21 income (enter in TurboTax at the 1099-Misc screen) . Then enter a line 21 deduction, for the same amount. In TurboTax (TT), enter at:
- Federal Taxes tab
- Wages & Income
- “I’ll choose what I work on” Button
Scroll down to:
-Less Common Income
-Misc Income, 1099-A, 1099-C
- On the next screen, choose – Other reportable income - Enter the number with a minus sign (-) in front. Briefly explain at description.
4. Report the income as misc line 21 (of form 1040) income. Then take a line 36 deduction. In the forms mode, open form 1040. Scroll down to the "Other adjustments to income" "smart worksheet" and enter your deduction in line H. Type in…." adjustment to erroneous 1099-Misc income"
5. Do nothing and hope you can explain it away when & if the IRS contacts you