"In invisible ink, probably lawyers get their fee tax free too. lol "

Absolutely not BMD. We pay taxes on all compensation whether the underlying settlement is taxable or not as it is part of gross income wihtout any exemptions: IRS Code section 61 defines grods income. Note "compesnation for services" below.

“Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: Compensation for services, including fees, commissions, fringe benefits, and similar items; Gross income derived from business; Gains derived from dealings in property; Interest; Rents; Royalties; Dividends; Alimony and separate maintenance payments; Annuities; Income from life insurance and endowment contracts; Pensions; Income from discharge of indebtedness; Distributive share of partnership gross income; Income in respect of a decedent; and Income from an interest in an estate or trust.” ...all income