Yes.
First and foremost, the rear "fenders" are not called fenders, its called the quarter panel. Most people call them rear fenders, but the real term is quarter panel, so use it interchangeably.
The inner part your looking to cut is actually part of the quarter panel and what is called the inner wheelhouse. If you clean up that area you will notice its spot welded together. By completely cut it away, you will greatly decrease the strength of the quarter panel. When I say greatly, I mean if anyone was to ever lean up against it on the edge, it would probably dent. If you were to ever get hit there during an accident, even at low speed, the damage would be much more severe than not cutting it.
I had the same issue as you and this is what I did. I cut little "slits" into that inner lip. I made sure that If the cut was near two spot welds I made sure if was centered between them, as to try and maintain the strength in the area of the weld. I think in total on one side I made 5 or 6 slits. One I did that, I used a plastic faced hammer and tapped the metal to bend it upward. I did this section by section until the metal was completely folded up against the inside of the quarter panel, essentially leaving no real "lip" on the inside. One thing you should know is if your not very careful when you bend it up you can cause little ripples or waves on the outside of the quarter panel that will be visible. This was not a concern of mine because I knew I was repainting my car and I knew I could repair those areas.
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