First I would send them a registered letter to request they correct the 1099 and send proof of the payments they did make so they have the correct amount.
If they absolutely refuse to correct the problem then your only choice is to report all the income they reported on the Sch C then in the miscellaneous expenses section you can enter the amount of the over payment under the heading " 1099 income error " so the falsely reported income is reversed ... and "in & out " type of entry ... then keep good records in case the IRS ever audits you.
