(I found this most helpful in dealing with some impossible people in my life lately... I hope it will help you too....I found this on WikiHow)

We all know impossible people. They tend to share three main characteristics: They cannot be reasoned with, they believe they can do no wrong, and they are convinced that everything is someone else's fault. If you haven't had some first-hand experience in dealing with such people, even a brief conversation can raise your blood pressure through the roof. These people may also be known to some as narcissists. Here are some insights and steps for dealing with these highly difficult people.

Steps
1. Recognize that impossible people exist; you will eventually encounter them. There isn't a thing you can do about it. The first step is all about facing reality: If you think you might be dealing with an impossible person, you're probably right. When in doubt, proceed as instructed below. The headaches you save will be your own.

2. Be aware that some people simply aren't compatible. Sometimes, a person who gets along with everybody else quite well is an impossible person for you personally. Most relationships between people contain many shades of gray, but some people simply mix as well as oil and water. It is common to hear your impossible person proclaim that "Everyone else likes me." This is an attempt to shift the blame to you, so don't buy it. It doesn't matter how this person interacts with others. The fact is, the way the two of you interact together is terrible. Remember that blame never changes the facts. To counter this, tell them that it is a logical fallacy, or specifically an *Ad hominem.

3. Understand that it's not you, it's them. This can be surprisingly difficult, considering that impossible people have complete mastery of blaming skills. If you're dealing with an impossible person, you're probably being told on a regular basis that every conceivable thing is your fault. It isn't. As the saying goes, "It takes two to tango." Chances are, the more often they blame you, the more they themselves are actually at fault. Keep in mind that this is not to be used as a way to blame them. Blaming is what impossible people do, and they do it well. Instead, you are only facing the facts, for your own sake. That being said, here's a simple way to tell: If you accept responsibility for your own faults and resolve to improve yourself, it's probably not you. Remember, impossible people can do no wrong.

4. Defuse them. Stay calm and don't spit angry words at them, what ever you do don't cry - you will be giving them what they want. Give them exactly what they don't want, ignore them, don't bad talk them because then you are sinking down to their level, but look away or start another conversation, with a totally different topic, whatever you do just stay calm!

5. Realize that you cannot deal with impossible people the same way you deal with everyone else. In some ways, they need to be treated like children. Give up all hope of engaging these folks in any kind of reasonable conversation. It will never happen, at least with you. Remember what happened the last fifty times you tried to have a civilized discussion about the status of your relationship with this person. Chances are, every such attempt ended in you being blamed for everything. Decide now to quit banging your head against a brick wall.

6. Protect your self-esteem. If you have regular dealings with someone who tries to portray you as the source of all evil, you need to take active steps to maintain a positive self-image. Remind yourself that this person's opinion is not necessarily the truth. Understand that oftentimes, impossible people are particularly "fact-challenged." If the attacks have little basis in raw fact, dismiss them. You can't possibly be as bad as this person would like you to believe you are. Do not defend yourself out loud, however. It will only provoke the impossible person into another tirade.

7. Guard against anger. If it helps, consider the fact that your anger is actually a precious gift to the impossible person. Anything you do or say while angry will be used against you over and over again. Impossible people tend to have amazing memories, and they will not hesitate to use a nearly endless laundry list of complaints from the past against you. Five years from now, you could be hearing about the angry remark you made today (which you didn't even mean in the first place). Impossible people will seize anything that provides them the opportunity to lay blame like it was gold.

8. Keep your cool. When the impossible person becomes hysterical (and they probably will, as this is a common trait among their kind), immediately "turn off" any serious consideration you had been giving them. What they are saying now should be considered gibberish. As they say, "In one ear, out the other." If at all possible, simply remain silent through the whole tirade. If that requires too much discipline on your part, make sure that anything you say tends to agree with them. Humor them. Don't ask them to calm down, because you then just invite further bombast (such as "Why should I calm down?! Look what you've done this time! You're lucky I'm not angrier than I am now!").

9. Give up self-defense. Understand very clearly that you cannot beat these kinds of people; they're called "impossible" for a reason. In their minds, you are the source of all wrongdoing, and nothing you can say is going to make them consider your side of the story. Your opinion is of no consequence, because you are already guilty, no matter what. If you tell them that you gave a million dollars to charity, they will say that you did it because you have a guilty conscience. If you tell them you discovered the cure for cancer, they will tell you that you just wanted the attention. There is no winning. Nothing you can do will be good enough. Anything positive you say about yourself will be interpreted as boorish bragging or self-justification, and you will be promptly "smacked back down to size" by a litany of negative comments and accusations. Impossible people view it as their sacred task to make sure you don't get the idea that you are worth anything, and they will act accordingly.

10. Understand that eventually, you and the impossible person will have to part ways. Whether they are a friend, a boss, a parent, even a spouse, the time to leave will eventually manifest. Maintaining a relationship with an impossible person is, literally, impossible. If you can't (or won't) make a physical departure immediately, make a mental one. In your mind, you've already left the relationship. The only thing left to do is wait for physical reality to reflect that fact.

11. Avoid letting the impossible person make you into a "clone" of them. If you aren't careful, you could find yourself adopting much of the offender's own behavior, even if you aren't voluntarily trying. Eschew blame entirely by understanding that this is just the way the other person is. It is the way nature made them by means of their environment, upbringing, experiences and choices in life. These things define the impossible person's actions, and nothing you do can change any part of their past.

12. Be a manager. Until it is over, your task in the relationship is to manage the impossible person, so that he or she deals less damage to you. As a manager, your best resources are silence (it really is golden in some cases such as this), humoring the other, and abandoning all hope of "fixing" the impossible person. Impossible people do not listen to reason. They can't (and even if they could, they wouldn't). You can't convince them that they have any responsibility for the problems between you. They don't recognize (or if they did, wouldn't try to improve) their flaws for a very logical reason; they don't have any flaws. You must understand and manage this mindset without casting blame and without giving in to anger. It's far easier said than done, and you will slip from time to time, but as time goes on, you'll become a better manager.

13. Realize that impossible people engage in projection. Understand that you are going to be accused of much (or all) of this behavior yourself. If your impossible person gets a look at this text, to them it will look like a page about you. Prepare yourself for the fact that the impossible person's flaws and failings will always be attributed to you. Remember, in their minds, you are at fault for everything! They will have an endless supply of arguments to support this, and if you make the mistake of encouraging them, they will be more than happy to tell you why you are the impossible person, and how ironic it is that you are under the mistaken impression that it is them.

14. Be the opposite of them: a possible person. Live as an example of tolerance, patience, humility, and even some kindness (as difficult as that may be)--because these are all the things that the impossible person is not or not very good at. We are all influenced by the people in our environment--they don't have to be perfect all the time and neither do you. Give respect because you are human. If you don't receive respect, that's -sadly- their problem. Give understanding, and you get understanding. Ultimately this sort of behavior is probably the only thing that might possibly get through to them. They may not change in everything, but you can safely expect a difference.

15. Recognize that they cut off or are cut off. Generally, impossible people have cut off relationships from many people: their in-laws, their own family of origin, friends, etc. This has happened because people distance from impossible people or impossible people have cut off others. Impossible people have a victim mentality: everyone is out to hurt them or has hurt them. The impossible person may have moved from job to job because “everyone else was incompetent” or “they didn’t appreciate me.” Unfortunately, sometimes the impossible person is your boss. If so, you won’t be able to do anything right. You may have had stellar reviews from prior bosses, but this one can see nothing positive in your performance. If so, look elsewhere within your organization or find another job altogether.