Our company has paid Consulting Fees to an independent person. I send this person a 1099 each year to report the fees paid to them. This year after receiving consulting fees for several months the consultant has refunded these fees for 2008 back to our company. How do I report this to the IRS?

If you were paid back exactly the amount paid out and it is in the same physical year you don't have to do anything, because your expense will be zero.