the person you should really ask is your attorney.
the following is from IRS pub 4345 which deals with the taxability of settlements.
"If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income."
the pub does not directly address recovery of legal fees. However, the above is somewhat akin to your situation.
if it were me, I would attach a supporting schedule for the other income line of the return
EAJA settlement $xxxxxx.xx
less legal fees paid and never deducted yyyyyy.yy (should not exceed above)
net $0.00
If you paid more in legal fees than you recovered, the excess could be deducted as a misc itemized deduction. as follows "legal fees for preservation of income in excess of settlement. $zzzzz.zz
