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You can deduct expenses of resolving tax issues relating to profit or loss from business reported on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship), from rentals or royalties reported on Schedule E (Form 1040), Supplemental Income and Loss, or from farm income and expenses reported on Schedule F (Form 1040), Profit or Loss From Farming, on that schedule. Expenses for resolving nonbusiness tax issues are miscellaneous itemized deductions and are no longer deductible.    See IRS - Legal expenses

If you were awarded money from a legal settlement or case, it's likely that the award amount will be taxable and should be included in your gross income reported to the IRS. Generally, the only exception is if the money was awarded to you as a result of a lawsuit for physical injury or sickness. But even then, there are other rules and exemptions that may apply, as outlined by the IRS.   In most instances, the attorney fees from these cases can't be deducted from your taxes.

You may be able to deduct legal fees related to certain employment cases, such as a claim of unlawful discrimination, a claim against the US government, or a claim made under the Social Security Act, as an adjustment to income. These fees are not limited to 2% of your AGI or subject to phase-out for AMT purposes as discussed in the Limitations section.

Legal fees aren't deductible on your federal return, but some states allow you to deduct them on your state return.