This depends on the nature of the settlement.
For example, settlements and judgments for personal injury are non-taxable, and there for non-reportable.
The taxing of settlements generally follows the rules for what was compensated for or replaced.
Apparently the order believes this to be a taxable settlement, because they said they would pay the taxes for you. If that is the case, then there would be a 1099 issued to the IRS and you at the end of the year; so in this case it is reported.
In addition, if they pay the taxes for you, then the money they pay for tax, is also income on which you have to pay taxes. If they intend to make you perfectly whole for taxes, then they have to pay about 71 to 77 cents on the dollar over and above what the settlement is.
This is called grossing up. Each time they pay taxes for you, that money becomes taxable, and so forth until you reach a point, that all taxes have been paid.