From Credit.com via Yahoo Finance:
If you are one of the more than 1.8 million people who have received a check from the Independent Foreclosure Review (IFR) settlement — or if you have one coming — don’t spend it all in one place. These payments are considered taxable income for state and federal income tax purposes and come tax time, Uncle Sam or your state taxing authority will want their share. Read more
... Legislation that would exempt these payments from taxes was introduced in Congress last year, but did not pass and no similar bills appear to have been introduced yet this year.
The IRS may issue further guidance by the time taxpayers must file their 2013 returns. But if it’s anything like the instructions for 1099-C and 1099-A forms, more than a few people will feel lost, and may have to hire a tax professional to assist them.
The paying agent has had problems with bounced checks (see here
) and failure to correct addresses for recipients. Also, some payments may have been issues with taxes already withheld.