IRS denies Corporate reimbursement to employee.?

If a corporation reimburses an employee for an expense that is later denied by the IRS, what happens?

For example, let's say in 2006, a corporation reimburses an employee $1,000 for education. In 2008 during an audit of the company, the IRS denies the expense saying that it doesn't meet their guideline for reimbursable education (for whatever reason...this is a hypothetical example). Does the company need to reissue the 2006 W-2 showing an additional $1,000 in compensation? That seems particularly cumbersome since the employee would then need to file an amended return and may have to reclassify Roth contributions etc. The employer would have to pay FICA for that year. Ouch! Or, can the company request that the employee pay back the $1,000 as if it never happened? Or, would the company simply change the employee's 2008 W-2 to show the $1,000 (even though it went to the employee in 2006)?

Any help would be much appreciated.