No, you won't be penalized by using an adjusting entry to prevent double-counting income.
The IRS may send you a notice asking for additional details (or proposing additional tax), at which time you can send them the information that justifies your adjusting entry.
Report both 1099-MISCs on you return, just as they were sent to you. Use the 1099-MISC interview found in Other Common Income.
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Enter the 1099-Miscs in the Other Common Income section (Enter "1099 misc" in the Search Box and Select "Jump to 1099 misc form")
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For "Description", enter "Contest Prize"
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Also check that it does not involve work like your main job, that it did not involve an intent to make money, and is not a recurring payment (received in the past or expected in the future)
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The income will be reported on line 8 of Form 1040 of your return (Other income from Schedule 1, Line 9).
To enter the "adjusting entry":
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Go to Less Common Income, Miscellaneous Income and Other reportable income. Enter "Lawsuit settlement" in the Search Box and Select "Jump to lawsuit settlement" to get to this screen
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Continue to the screen "Other Taxable Income". Enter the description as "Contest Prize Duplicate 1099MISC" and the amount as a negative number. Entering "- $ XXXX" here will offset the duplicate amount on the Form 1099-MISC. These are NOT wages.
A corresponding negative amount will be entered, and line 8 of Schedule 1, will be zero.
