As far as I can ascertain - if it's likely a fake 1099 then no, as acknowledging it may be taken as an admission that you are responsible for the debt. If it is a valid 1099 then what I have read is that you likely have to file it with comments to the IRS requesting that it not be included as income as you only received it as a result of identity theft. Be prepared to show proof of this in your submission. I think this is unfair as it puts the onus on the filer to supply evidence and lets the supplier (PayPal) completely off the hook, but that seems to be the process with the IRS as far as I can see at the moment. I'm thinking of consulting with a tax professional to see what to do as I had already submitted my return using Turbo Tax. I think I may have to supply an amended return acknowledging the 1099 and questioning its validity.
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