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Because this appears to be a negotiated settlement, not litigated, the criteria for litigation settlements do not apply.
I would treat this as a gift, no tax benefit to payor and tax free to recipient.
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It does change my answer. The settlement will be taxable income to A and deductible by B under Raytheon v Comm, 1944. It does not matter if the litigation went to judgment or was settled, the relief received by A is taxable to A and deductible by B.