Settlement proceeds received by a woman from a fertility clinic are nontaxable, IRS privately rules. The woman contracted with the clinic to provide her with a donor egg and embryo transfer through in vitro fertilization. She got pregnant, but discovered after delivering the baby that her child suffered from a genetic condition with physical and other disabilities. The clinic did not do genetic testing on the egg prior to implantation in the moms womb. Testing done post-birth showed that the egg carried the gene responsible for the baby’s condition. The mom sued the clinic, and the parties settled. The funds are tax-free because she received them on account of the baby’s physical illness and her emotional distress attributed to the illness.