Really, the company cannot legally do that! But, the real question I have for you is did you report the 1099-Misc income in tax year 2007?
Assuming you did not report the income in 2007, than you have not properly reported your miscellaneous income in 2007. Therefore, the issue gets a little complicated here. This means that you have to amend your 2007 tax return to include this omission of the 1099-Misc income and pay the taxes and interest associated with this additional income being reported in tax year 2007through your amended tax return. Then, you should follow through the next step discussed below.
But, if you have reported this income in 2007 you can ask your CPA or tax preparer to declare this income as a schedule C income but take a deduction equal to the amount reported in 2007. An explanation should be attached to the tax return stating that this 1099-Misc income was claimed in tax year 2007. The net impact on your tax return is Zero additional taxable income.
At least that is what I have done in the past with many IT consultants who have received 1099-Misc erroneously in the wrong taxable year! A clear explanation is required showing what year the income was reported by the taxpayer.