@RJG
In this case, yes. Since the IRS has the prior year tax return, the IRS knows that the individual did not use state income taxes paid as their Federal itemized deduction for that year.
In fact, if the filing person does enter the 1099-G, and answers the followup questions properly about Schedule A, line 5a or 5b being checked on the prior year's tax return (5b for sales taxes in this case), then the 1099-G form data won't even be included as a part of that persons filed tax return with the IRS.
____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*
