After 16 -- yes, 16 -- years, IRS issues final regs on exclusion of damages for personal physical injury. This is not very world-shaking, but it is noteworthy that monetary recovery only relative to physical injury or physical sickness is excluded from income. In other words, if you have a recovery based on emotional distress, then the IRS regs require you to report that as income. On the other hand, "The regulations also permit the exclusion of damages for emotional distress, to the extent the emotional distress is attributable to a physical injury or physical sickness, and also permit the exclusion of damages that do not exceed the amount paid for medical care for emotional distress."
It's unfortunate that in our supposedly enlightened world, there is still a distinction drawn between bodily injury and the just as legitimate emotional or psychological injury.