Assuming this is not a refund of tax preparation fee, but compensation of "injury" you suffered, I can see why your CPA friend thinks this may be taxable income. Under current tax law, damages unrelated to physical injury or sickness are generally taxable. I would further assume a mistake made on the tax return wouldn't include physical or emotional harm.
Tax implications of settlements and judgments | Internal Revenue Service
The general rule regarding taxability of amounts received from settlement of lawsuits and other legal remedies is Internal Revenue Code (IRC) Section 61. This section states all income is taxable from whatever source derived, unless exempted by another section of the code (emphasis added). IRC Section 104 provides an exclusion from taxable income with respect to lawsuits, settlements and awards. However, the facts and circumstances surrounding each settlement payment must be considered to determine the purpose for which the money was received because not all amounts received from a settlement are exempt from taxes. The key question to ask is: "What was the settlement (and its corresponding payments) intended to replace?"
26 U.S. Code § 61 - Gross income defined | U.S. Code | US Law | LII / Legal Information Institute
Internal Revenue Code Section 61
26 CFR § 1.61-1 - Gross income. | Electronic Code of Federal Regulations (e-CFR) | US Law | LII / Le...
Regulations on Code Section 61
(a) General definition. Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. Income may be realized, therefore, in the form of services, meals, accommodations, stock, or other property, as well as in cash. Section 61 lists the more common items of gross income for purposes of illustration. For purposes of further illustration, § 1.61-14 mentions several miscellaneous items of gross income not listed specifically in section 61. Gross income, however, is not limited to the items so enumerated.
26 U.S.C. § 104 - U.S. Code Title 26. Internal Revenue Code § 104 | FindLaw
IRC Section 104
(a) In general.--Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include--
(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness;
___________
Another IRS source on this subject is Publication 525:
Publication 525 (2023), Taxable and Nontaxable Income | Internal Revenue Service
Someone has already pointed out you don't need a 1099 to report income. You can report this money received from your tax preparer on Line 8z of Schedule 1, Other income
