Thanks for the quick reply. No, we didn't discuss this before, however, my attorney send an explanation to me regarding to this issue, please see following;
"You may have received a 1099 from either the creditor or credit reporting agencies for a case
that a law firm settled for you. The amount in the 1099 may have been for the full amount of the
settlement, even though you received only a portion of the settlement. For example, a client
may receive a 1099 for the full $5,000 paid in settlement agreement, while the client only
received $1,000 from the settlement. This is because the tax document that came from the
creditor or credit reporting agencies includes the attorneys' fees paid to the attorney.
The good news is, IRS opinion letters state that you are not responsible for paying taxes on the
amount that was allotted for attorney fees. If the client has no contractual obligation (as per the
retainer signed with the attorney) to pay the firm out of pocked attorneys' fees, under any
circumstance, win or lose, and the law firm is just receiving attorney fees from defendants that
were sued (as per required by law) the portion of the 1099 that represents that amount for the
attorney fees, is not taxable to the client. Therefore, one would only be responsible to pay taxes
on the amount the client actually received. Please consult with your tax professional for the
proper method in reporting this income. Our firm EIN is xxxxx."