"If the IRS wants their few dollars, let them send notice"  My inclination is to agree with you but...if you don't report a 1099 IRS will send a notice and attach a non-payment of tax penalty with interest. Best to report it and see what happens. There is enough "stink" being raised about this issue I would not be surprised if the IRS backs off on taxing what was not intended to be taxed. State rebates usually are not taxed because they are considered past taxes paid that is being returned.