No, you cannot skip it. As IRS also receives a copy of your Form 1099-MISC, to avoid any correspondence from IRS, you need to report it. To possibly reduce your tax liability, you might be able to deduct any legal expenses you spent in the lawsuit. By law, you can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax.
You can also deduct legal expenses that are
- related to either doing or keeping your job
- for tax advice related to a divorce, if the bill specifies how much is for tax advice and it is determined in a reasonable way, or to collect taxable alimony.
IRS also allows expenses of resolving tax issues related to profit or loss from business, rentals or royalties, or farm income and expenses. You would deduct qualified legal fees on a Schedule A of your Form 1040.
