Frank Abagnale (“Catch Me if You Can”) advises using Form 1099-MISC
Abagnale says filing a 1099 is one of the best options for those who have been affected by embezzlement. Turning the embezzler over to the IRS can result in restitution more quickly than taking him or her to court.
I do not recommend doing this.
Use Form 3949A instead!
Do not use a W-2 or 1099-MISC form to report income from embezzled funds. W-2s are submitted to report compensation from work performed, and Form 1099-MISC is intended to be used to report payments made to a “non-employee” for fees, commissions, prizes, and awards. I’ve advise my clients to use Form 3949A instead.
For Canadian embezzlement victims – Canada Revenue Agency has replaced its easy to use Form IT-256R with Tax Folio S3-F9-C1. (not so easy to use…)