Profile For Nice Trucker

Well, my spouse wanted to help a friend become an owner-operator but his friend bought his truck BEFORE his MC# was established. The friend obviously can't get loads without it. We also leased our own trailer to him really cheap (just the monthly loan payment on it). So my spouse agreed to get the friend his loads using our MC#, until his MC# was figured out. His the payments came to us, we in turn paid him every cent of the rate of each load. Well, the friend decided to sell his truck six months later when it started having tons of mechanical repairs. The friendship also ended when he didn't want to pay for the last two months of using our trailer. Goes to show some people just don't appreciate a good thing. The problem that worries me most, that the tax person said we have to file a 1099 because we received the the friend's money on his behalf. I found the form, but HOW do I file a 1099? will we end up paying IRS penalties?