If that's fully seated at that point,... just attach it there.  I cut a few extra slits in the muffler end with a hacksaw to let the clamp compress a bit more... Use a sturdy clamp...

That reduced section on the pipe, is where the inner wall meets the outer.  It would be best to leave it in tact, although you could probably get away with cutting it,... but no need really...
...better to leave it and keep it strong... ...

Ran into the same thing when I installed mine. I did cut off that reduced part. There weren't any welds or anything so I didn't see why not. Haven't had any noticeable problem yet.
Theoretically, what problems would you expect cutting that to cause?

I had the exact same problem with my Dyna muffler.  Turns out there was a very small, narrow "ring" inside of the Dyna muffler.  I used a screwdriver and pried the ring out and everything fit perfect.  The ring wasn't spot welded or attached to the muffler in any way that I could see, it was just sitting in there keeping me from sliding the muffler all the way to the larger ring on the header pipe.  (by the way, before I noticed the ring, I did cut off the very end of the header pipe and it still wouldn't slide all the way on).