Please see for reference IRS publication 525 - http://www.irs.gov/pub/irs-pdf/p525.pdf
To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces. The character of the income as ordinary income or capital gain depends on the nature of the underlying claim.
Include the following as ordinary income.
Attorney fees and costs (including contingent fees) where the underlying recovery is included in gross income.
Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).
Emotional distress itself is not a physical injury or physical sickness, but damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness.
So - to determine if any part of your settlement amount is taxable - you need to reread your settlement document and itemize your compensation.
Let me know if you need any help.
Even that was not your personal settlement - there is still exists a settlement document that was the basis of the payment you received.
That document should be obtained and examined in order to determine if all or part of the award is taxable.
Without such document it is impossible to determine if your award is taxable or not.
I believe that this is a settlement document you referenced above - http://www.hesskennedyreceiver.com/pdfs/hess_120809A.pdf
If that is correct - the settlement is about repayments of fees and funds that were paid previously by you - and as such - payments are not taxable.
You need to keep a copy of the settlement document with your tax documents and provide to your tax preparer for considerations.