@gn  “more of an agreement to leave and not talk about the situation”

Talk about what situation?

A “settlement” doesn’t require filing a lawsuit. Cases are often settled out of court, usually with a nondisclosure agreement. An NDA should make an exception for the parties to tell their tax preparers enough details to sort out the tax questions.

The types of payments that would be included on a 1099 include attorney’s fees, punitive damages, emotional distress and other nonphysical injuries.  But these should be shown in Box 3, not Box 7.