Encrypting the email sounds like a good approach.
After much googling, I found IRS publication 1179.
Section 4.6 addresses the electronic delivery of 1099 (and other) statements. Section 4.6.2 says that the recipient must consent to receiving electronic delivery, and must do so electronically to show that they can access the statement in the electronic format.
It seems like most people who choose to issue 1099s electronically do it by posting the statement(s) on a secure server. The recipient logs in and provides proof of identity in order to receive the document. Nothing says it can't be done by secured email, but I supposed the request then would have to come by email, and there would have to be some way to be sure the email address belonged to the intended recipient.
