I live in Santa Monica, California. I used to share a two bedrooms, 2 baths rent controlled apartment with another person for over 12 years. The building consisted of 11 units(8 two bedrooms and 3 one bedroom). All the units were rent controlled. Therefore, the rental income was low.
The owner passed away and the building was listed for sale by the children. Many people visted the building, but not interested because the rental income was too low, until one greedy couple(A man & woman) purchased the building with the intent to evict all the renters one by one through tricky compromise and settlement so that they could rent the units at the market's rate. They purchased the building for only $750,000 in 1998. Similar buildings in that area was sold around 2.5-3.00 million dollars. According to county record, they put $250,000 down and obtained a loan for $500,000. Now the building is worth 7 million dollars.

Shortly after they purchased the building, they began their deceitful conducts by harassing the tenanants one by one for a few months to 2 years, when it didn't work, they offered them a few thousand dollars, obtained confidentiality agreement from each tenant. Once they moved out, they filed the 1099, claiming payments to them as subcontracters(I believe in line 7 of 1099).

Soon, it was my turn. First they began harassing me and then charged my co-tenant against me for at least 4 years on a weekly basis. Hence, I fought back in riting as much as I could. Finally, like others, they offered me some money and obtained my signature against the disclosure of thie confidentiality and I moved out in April 2007.

Shortly after, they filed a 1099 (line 7) without sending me a copy. I discovered this when I contacted IRS in 2008 for my 2007 reported wages needed for a personal matter.

I contacted one of the partners and told him that first of all we did not agree that you file 1099, secondly, you have reported on line 7 which IRS thinks that I was your independent contractor. He aggressively claimed that they had done it for others and had no problem. I told him that this time he would have problem if he doesn't use line 3. Finally, he corrected it and showed it on line 3.

Now, I have to pay taxes on the aomunt I received. I'd like to know if the landlord receives a tax write off by reporting the money on 1099, line 3? Further, if I report him to IRS, would they do anything or the government employees can not fight him because of his use of high end CPAs which intemidate government employees.

I appreciate your answers.

You received payment in 2007, which is your income. Even if you did not receive 1099-misc, you were required to report it.

Now the question is what type of income is this? Compensation income, settlement income?
Is this income subject to SE tax at 15.3% or not?

Landlord was required to file 1099-misc. Yes, they should have sent copy to you.

You should report the transactions as you see it to the IRS Fraud Line (you can get the phone number off the website).

Once you submit the paperwork, it is out of your hands. The IRS will investigate to determine if any laws have been broken. If not, nothing will happen.

If they determine a law has been broken, then they will pursue it. If additional taxes are collected, you will receive a reward (which is taxable BTW) based on a percentage of the tax collected.