Yes, you should go ahead and claim it.
But, your parents need to account for it on their return to ward off an IRS inquiry.
They should enter the 1099-G. Then enter an offsetting deduction.on line 21 of form 1040,
for the same amount. In TurboTax (TT),
enter at:
- Federal Taxes tab
- Wages & Income
Scroll down to:
-Less Common Income
-Misc Income, 1099-A, 1099-C
- On the next screen, choose – Other
reportable income - Enter the number with a minus sign (-) in front. call it "nominee recipient adjustment for 1099-G"