Yes
As stated above, this income is similar to an easement.
Yes, you are getting income today, but it is not taxable because you lost or "sold" part of your property to get the income.
If you enter the 1099 payment, so that the IRS can track that 1099, you would also enter the "adjustment" so it is not taxed and the IRS gets an explanation to why you are not claiming that income.
In your situation you are giving up trees and having lines run along the frontage of your property.
The payment reflects how much the power company feels their disruption has affected your property, so you simply reduce your basis.
EXAMPLE:
You buy the property for 200,000.
Sell for 300,000
You have a 100,000 gain (income)
You buy the property for 200,000
Utility Company pays you 5,000 for tree damage
Now you reduce your basis by that 5,000 to 195,000.
You sell for 295,000 since the missing trees brought your value down.
Now you have a 100,000 gain. The same as before.
You buy the property for 200,000
Utility Company pays you 5,000 for tree damage
Now you reduce your basis by that 5,000 to 195,000.
You sell for 300,000 because the Buyer doesn't care about the missing trees.
Now you have a 105,000 gain. The same as before, but an additional 5,000 because you received 5,000 previously from the utility Co.
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