Your client, Teddy Chow, and his wife Abby filed a lawsuit to recover damages for personal injuries Teddy sustained in an auto accident in 2008. In 2012, a jury awarded Teddy $1.62 million in damages. In addition, delay damages in the amount of $1.08 million were then added to that award, resulting in a total judgment of $2.7 million. The defendants appealed the award, and while the appeal was pending, the parties reached a settlement, which provided for payment to Teddy of $2.55 million. In 2017, after attorney fees of $850,000 were subtracted, Teddy received $1.7 million. Teddy wants to know how these amounts are treated for tax purposes.

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