For example, actors read phrases such as "don't work too hard" in both a neutral sense (meaning "you're a hard worker") and a sarcastic sense (meaning "you're a real slacker"). Each comment came in proper context as part of a story about, say, a worker who's sleeping or a worker who's grinding away at his job. All the subjects understood the sarcasm except for those with damage to the prefrontal area, which is above the eye sockets and behind the forehead. And among those, people with damage to a specific area known as the ventromedial area had the most trouble deciphering sarcasm.
From Scientific American:
Vilayanur S. Ramachandran of the University of California at San Diego and his colleagues tested four patients who had experienced damage to the left angular gyrus region of their brains. All of the volunteers were fluent in English and otherwise intelligent, mentally lucid and able to engage in normal conversations. But when the researchers presented them with common proverbs and metaphors such as "the grass is always greener on the other side" and "reaching for the stars," the subjects interpreted the sayings literally almost all of the time.
And finally, via Metaphor and Symbol:
Two subtests-Sarcasm Comprehension and Metaphor Comprehension-of Gardner and Brownell's (1986) Right Hemisphere Communication Battery, adapted to Hebrew, were administered to 27 right-brain-damaged (RBD) patients, 31 left-brain-damaged (LBD) patients, and 21 age-matched normal controls. RBD patients tended to score somewhat lower than LBD patients on Sarcasm Comprehension and higher than LBD patients on Metaphor Comprehension. Both patient groups showed a significant impairment in Sarcasm Comprehension relative to normal controls. The difference between RBD patients and normals in Metaphor Comprehension did not reach significance, but there was a significant disadvantage to LBD patients relative to both RBD patients and normal controls. Significant negative correlations between test scores and lesion extent were found for Sarcasm Comprehension in left middle and inferior frontal gyri, and for Metaphor Comprehension in left middle temporal gyrus and the junctional area of the superior temporal and supramarginal gyri on the left. Lesion extent in right hemisphere regions did not correlate with either test performance.