I am dealing with almost the same situation; however, the  amount show on 1999 (other income) i do not know if it is for legal fee, I was informed that description of the amount reported on the form 1099 Mis is non wages amount. I would like to ask you how you proceed in the preparation of that return? Did you included the amount on 1099 as other income or you deducted that amount as a legal fee only for the state? What did you do in that particular return? 

Thank you !!!