I know this has been 4 months since posted, but for the benefit of anyone who finds this...
When PayPal reports the IPNs are returning a 406 error, this is often related to mod_security on your web server blocking the request due to thinking it's a hacker/spammer. Contact your ISP, ask them to review the mod_security logs, and if that is the case, then have them whitelist the PayPal IPs listed under "notify.paypal.com" here: https://ppmts.custhelp.com/app/answers/detail/a_id/92
