What should I do if I receive Incorrect information on 1099?
The best approach to handle this situation is to file your tax return and include the 1099-Misc income on your Schedule C. In this way, the IRS will be able reconcile the 1099-Misc with its records. Then, I would show an adjustment (which I would write "SEE NOTE 1" next to the adjustment amount) against the income of a negative $5,400. Thus net income would be the correct amount.
I would include an attachment "NOTE 1" to the tax return, explaining that the adjustment amount represented the amount of error that was reported to you on the 1099-Misc by the defunct company.
If is also worth mentioning the amount and frequency of the payments made to you and present the total payments paid to you and compare it to the amount reported, and identify the difference as being the adjustment amount.
All 1099-Misc reports are sent along with a Form called the Annual Transmittal Letter Form 1096, which includes a contact name along with a contact telephone number. So, it is possible that the IRS may make an inquiry into this discrepancy.
The question I have though is "does the $5,400 represent a reimbursement to you or is it an actual overpayment error in total payments received to you in 2007?"
If it represents a reimbursement for say, travel expenses, then I would include the total amount shown on the 1099-Misc as income and deduct this travel expense amount on Schedule C. Thus, you are effectively offsetting the additional income reported on the 1099-Misc with the travel expenses.
If indeed, this was a mathematical error than I would follow the approach that I have recommended above, as any deviation from the above could trigger an automatic IRS adjustment on your tax return, causing an additional tax liability along with a possible penalty and interest to you!