Taxpayer owns several two family rental properties. The village where they are located wanted to reduce the number of two family homes so they paid an "Incentive" to property owner's who converted two family homes back to single family homes. Taxpayer received a 1099 MISC from the village for the amount of the incentives in box 3, which is significant. I do not believe this is income and the 1099 should not have been issued. I believe this should be a reduction in basis. However, my research has failed to find anything to back up either position.
Has anyone else run into this or similar situation?