How to act if somebody sent to IRS 1099-MISC with false claim of payment?

I suggest that your friend phone the IRS office which alerted him to the existence of the bogus Form 1099-MISC and follow-up with a letter, stating that he/she: 1) has never heard of the company that sent the Form 1099-MISC to the IRS; 2) did not receive a copy of the purported Form 1099-MISC from the company (if that fact is true); 3) he/she has never had any involvement or business relationship with that company; and 4) he/she did not receive that payment from the company and has never received any payment from that company. After receiving your letter, the IRS should follow up and contact the company for substantiation of the payment it claims to have made to your friend. The IRS also may ask your friend to sign a Statement or Declaration setting forth his/her factual basis for asserting that the Form 1099-MISC was erroneously submitted to the IRS. If the IRS does not respond to your friend's letter, then he/she should elevate the matter to a supervisor in that office, and perhaps ultimately to the IRS Taxpayer Advocate's Office. In my opinion, it is quite likely that the IRS will drop its insistence that your friend pay the additional tax allegedly owed on the $80K shown on the Form 1099-MISC, if the company cannot verify that it made such payment to your friend. Not long ago, I represented a client during an audit in which the IRS asserted that he owed additional tax on about $800K of income allegedly paid to him by a cross-country entity that he had never heard of, as shown on a Form 1099-MISC. The IRS dropped the proposed tax adjustment based upon that item after it unsuccessfully attempted to locate/contact the alleged paying entity.