PayPal 1099-K for Lawsuit Settlement

[viking]

I received a payment for a lawsuit settlement that was paid to PayPal.  PayPal states that it was sent as payment for goods and services and therefore subject to 1099-K reporting. They cannot do anything about this.
How would I report this on my tax return? It would be incorrect to file this as business income.

[ee-ea]

This applies to Form 1099-NEC, 1099-K, 1099-Misc et al and to other taxable income without a report.

Enter it in the personal section, Other Common Income Form 1099-MISC.  To ensure it does not go to Schedule C (self-employment), you will answer the follow-up questions accordingly. 

On the Describe the reason for this 1099-MISC screen, enter a description of the other income. (award/stipend)

Select None of these apply on the Does one of these uncommon situations apply? screen.

Select No, it didn’t involve work like my day job on the Did the involve work that's like your main job? screen.

Select I got it ONLY in 2023 on the How often did you get income for? screen.

Select No, it didn’t involve intent to earn money on the Did the work involve an intent to earn money? screen.

Answering differently to any of these questions will imply self-employment and generate Schedule C.  

Please give feedback. If this helps click “Thumb” or “Best Answer” if it’s a solution.

[viking]

Thank you for your answer. However, wouldn't IRS get confused when I got a 1099-K (which is for business sales of goods and services) and file for a 1099-MISC instead?

[JamesG1]

IRS Form 1099-K Payment Card and Third Party Network Transactions is not required to be included with the Federal 1040 income tax return like an IRS W-2 or IRS Form 1099-R.  It's purpose is to increase voluntary tax compliance and it has achieved that purpose in your case.

If you follow the directions above, make sure that you retain the IRS form 1099-K with your income tax records should a question arise at a later time.

Form 1099-K FAQ's General information, Q1 here states:

Third party information reporting for certain payments is required by law and has been shown to increase voluntary tax compliance, improve tax collections and assessments within the IRS.

[viking]

OK. But doesn't IRS match up the 1099-K report that they have with the Tax Payer's 1099-K reporting of "Business income"?
If the 1099-K reporting of "Business income" is missing, doesn't that raise a red flag?
They see that the Tax payer reported 1099-MISC income, but that could be for something else. They could still be waiting for the Tax payer to report on the 1099-K....?