What is ‘Nominee’ income and how do I treat it?
Ignore the expense and the associated income.
Whenever a person gets reported income that is really not theirs, they can report it on their tax return as nominee income. This happens more often in the interest income section. For example, your mother has a savings account and you she adds you to it. The bank accidentally puts you as the primary and sends you the 1099 for your mother’s interest income.
You can report it on your Schedule B, and should, since the 1099 the IRS receives has you on it. But you do not want to pay taxes so you (or your preparer) issue a 1099-Nominee to your mother so she reports it. You also report it on your return but turn right around and take it off, labeling it nominee interest.
Then you call the bank and ask them to correct the order of the Social Security Numbers on the account. This is easier than asking them to change it and issue a corrected 1099.
Nominee income is less likely to be on Schedule C but my guess is your borrower received a 1099 for non-wage income that really belongs to someone else. The borrower (or preparer) issued a 1099-Nominee to the person who should report it (with a copy to the IRS) and, because there was a 1099 with his/her name on it, also reported it on a Schedule C. By putting the expense to wash out the income, the borrower’s taxable income was not impacted.
You can completely ignore both the income and the expense as if it did not happen.