Randall O. Sorrels (President, Houston Bar Association) & Neel Choudhury have published Plaintiffs’ Attorneys Beware: Little Known Tax Consequences Associated with Confidentiality Provisions, 6 Hous. Bus. & Tax J. 257 (2006).  Here is part of the Introduction:

This paper is designed to provide an in-depth look at the current issue of taxing proceeds from personal injury settlement agreements that are attributable to confidentiality provisions and suggests ways to either avoid or minimize the adverse risks such taxation can have on plaintiffs receiving those proceeds. Section II of this paper discusses the general rules and requirements for Internal Revenue Code § 104(a)(2) exclusions of settlement proceeds stemming from physical personal injury or sickness. Section III provides a detailed analysis of the Amos case, which is the seminal case regarding taxation of confidentiality provisions in personal injury settlements. Finally, Section IV suggests an array of techniques that can be used to either eliminate tax concerns stemming from confidentiality provisions or at least minimize their adverse effects on the plaintiff’s settlement proceeds.