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If the payment was a "nuisance" payment, meaning that you were paid because you were inconvenienced (pain and suffering, etc), it is taxable.
If it was to reimburse you for expenses, it is not taxable.
Let me know if you still have questions.
The following links may help you....they offer a full explanation about settlement cases:
Market Segment Specialization Program (MSSP)
MSN Money - Win in court without losing to the IRS
Peace, Love & Happiness,
The Mystic Wave