I'm thinking that entering the 1099-MISC in the standard area with amounts that match the physical 1099 sent to them has the best chance of NOT getting flagged by their automated system, and then put a negative adjustment in the Other Miscellaneous Income section to get to the correct taxable amount with an explanation letter. IRS guidelines recommend that explanatory letters be filed with the return for unusual circumstances so I suspect there are systems in place to make sure the letter remains with the return, and as you mention if they ask for further documentation it can be provided. I'd like to approach it so that their response, if any, would be manually prepared on their end rather than having the automated system say I entered the 1099 incorrectly. Does this make sense?
