My Sister, who I'm not on good terms with, issued me a 1099 in June this year for interest on a bank account my Sister has in her name that was earned in 2007. The money in this account was supposedly to settle my Mother's estate which was to be split 50/50. The split was more like 70/30 with myself getting 30% however the interest had been on 50% of the money in the interest bearing account. My Sisters Attorney who issued the 1099 to me said I needed to amend my 2007 taxes to include this 1099.

My question is can they do this and why should I have to amend my '07 taxes?

If you have received interest in 2007, you must amend your 2007 tax return.

Even if the interest indicated on the 1099 was incorrect?

You CAN dispute the Form 1099-INT with the IRS, but unless the difference is over $3,000, it is not worth the time and effort In my opinion.