It would only be income if the amount initially paid was a deduction when paid in 1996.
If it wasn't then it is not income.
The issue here is that IRS is getting a copy of the 1099Misc.
What I would do, and recommend you do, it shows this on line 21 of return as income and then also show another entry on line 21 with the same amount as a negative number. Tax impact is $0 and you have accounted for this to IRS.
To do this:
The easiest way to report this is "Other Income"
In the income section, there is Section called "Other Income"
at the bottom of that one, go to "Miscellaneous Income, 1099A, and 1099C" and click start,
then go to "Other Reportable Income"
Click start, say yes, type in Name of Country Club/1099Misc and then $25K,
then 2nd one will as Country return of money paid and -$25K..