Wow....This thread certainly got out of control...by a lot of people who are not tax professionals.
Bottom line: A settlement is or isn't taxable based on what the settlement actually covers. The wording of a settlement can help determine what it covers, but the wording of a settlement does not "rule" in that respect.
Some settlements are worded very well, and that can make it easy to determine what part is or isn't taxable. However, arbitrarily choosing wording, rather than the wording specifically explaining does not make a difference.
IF, any portion of the settlement is taxable, then a proportional amount of the attorney fees attributable to that amount are deductible on Schedule A. If no portion of the settlement is taxable, then no attorney fees are deductible.
In this instance the IRS is unlikely to believe that none of the settlement was to cover lost wages. Any portion of a settlement covering lost wages absolutely IS taxable.
You do not have to be a tax professional to see that the OP's settlement is NOT taxable.
For instance, the settlement agreement speciffically points out compensation for an array of possible claims concerning the OP's circumstances surrounding his employment. The agreement does not zone in on any one factor, whether it be lost wages, pain and suffering, breach of FMLA guidlines, etc...
You'd have to agree it would probably take extensive Discovery and a trial to dissect all the claims and then find some kind of taxable income in the award.
However, this case hasn't gone to trial nor has there been extensive Discovery. The language in the settlement says it is compensating for everything that the Defendant might be liable for. Defendants even admit no liability. OP claims physical and emotional distress. This is conclusive if the OP does indeed have medical records (documentation) to show this.
It is not conclusive that there is lost wages caused by an FMLA breach, which if it were, could manifest itself as taxable wages. If the employer isn't admitting it and the OP isn't pursuing litigation to prove an FMLA breach, it hasn't been proven so it isn't conclusive.
The IRS is not going to waste their resources on trying to prove that this settlement is taxable because the only thing the language shows is that it is being paid for pain and suffering which for all intents and purposes, is the only conclusive element in the case.
Also, I don't believe that an attorney would arbitrarily choose wording that would hide any taxable income. As I experienced and alluded to earlier in this thread, an attorney could inadvertently neglect to word an agreement to the Plaintiff's detriment, by not taking credit for income that shouldn't be taxable, thus resulting in the Plaintiff paying a good chunk of change to the IRS.