I'll answer your questions out of order--it will make it a little easier to organize my posting.
1. You can only deduct attorney/legal costs that are involved or specifically for obtaining taxable income. As in the previous example, if 1/2 your award was taxable and 1/2 your award was not, then 1/2 of your legal fees (if the legal fees are not specified as to what hours were spent on what part of the case) would be deductible. Legal fees of this type would be taken as a miscellaneous deduction, subject to 2% gross income limitation, on Schedule A of you tax return, unless this is a business related case--and then the deduction would go on Schedule C or other business return form.
2. An out of court settlement, as noted in the brochure that I linked you to, is a bit more difficult than a court decided case to determine as to what the settlement represents...since the amount of the settlement is usually not detailed or broken into categories.
I would ask the payer if they will be issuing a 1099MISC form to report the payment. This is a tax reporting form, and generally whatever is on the 1099, the IRS will look at as taxable unless you can show otherwise.
I would also use the facts and discussion on pages 2-3 to 2-4 in the IRS booklet I linked you to...because it discusses how facts and circumstances of each case will determine what is and is not taxable, and how a settlement should be allocated.
For example (and I have no idea what your case is about---analyzing it would be beyond th scope of my expertise as I am not an attorney)---Suppose you spent 10,000 on a product or service that was not delivered or made good on. You sued the company. The settlement that you were eventually rewarded was for $15,000. IN this case, you could presume that 10,000 was compensatory,(a refund of your expense and not taxable) and $5,000 was punitive.(taxable).
I would report the income you decide is taxable based on the facts and circumstances of your case, and keep all of your documentation related to your original suit and settlement to back up your case if the IRS questions your amounts reported and your deduction for legal expense.