I would appreciate any help with this. We received a check from our builder due to incorrect installations done to our home. There was not lawsuit involved. The builder acknowledge their errors and gave us money. We received a 1099 MISC with Box 3 filled out for the amount of 10000. When I went through the software it greatly reduced my refund by 3000. It appears that we are to pay taxes on this. It technically is not income, as a portion of this will be used to fix the errors. We have not fixed it yet as we are living with it until we have to. Is it true that I have to pay taxes even though it was due to the builder having incorrectly installed items on my house? I have a letter from the builder stating what the check was for. Any help will be appreciated.