Story Highlights
- Trump is expected to drop a $10 billion lawsuit against the IRS in exchange for the creation of a $1.7 billion “weaponization” compensation fund drawn from the Treasury Department’s Judgment Fund.
- The proposed commission overseeing the fund would operate with no obligation to disclose its decision-making, and Trump would retain the power to remove its members without cause.
- A federal judge had already flagged serious constitutional questions about Trump suing his own government, ordering both sides to justify the lawsuit’s viability by May 20, 2026.
What Happened
President Donald Trump is expected to abandon a $10 billion lawsuit he filed against the Internal Revenue Service this past February — a suit stemming from the 2019 unauthorized leak of his private tax returns by a former IRS contractor — in exchange for the creation of a $1.7 billion taxpayer-funded compensation fund, according to sources familiar with the matter who spoke to ABC News. The arrangement, which has not been officially announced and whose final terms have not been finalized, represents one of the most legally and constitutionally unusual developments of Trump’s second term.
The underlying lawsuit had its origins in a genuine government failure. Charles Littlejohn, a contractor employed by consulting firm Booz Allen Hamilton and embedded inside the IRS, illegally accessed and stole the confidential tax return data of Trump, his sons, and the Trump Organization between 2018 and 2020, sharing the material with the New York Times and ProPublica. Littlejohn pleaded guilty and received a five-year federal prison sentence. Trump filed his $10 billion civil suit against the IRS and Treasury Department in January 2026, alleging the government was liable for Littlejohn’s actions. Even Trump acknowledged the arrangement’s awkwardness, telling reporters in October 2025 that it “sort of looks bad” and “it’s awfully strange to make a decision where I’m paying myself.”
The proposed settlement structure would replace Trump’s legal claims with a new five-member commission empowered to distribute approximately $1.7 billion in funds drawn from the Treasury Department’s Judgment Fund — a permanent congressional appropriation historically used to pay valid court judgments and settlements. Under the proposed terms, the commission would have total authority to compensate anyone who alleges they were harmed by the Biden administration’s alleged “weaponization” of the federal government, including the nearly 1,600 individuals charged in connection with the January 6, 2021 Capitol attack. Trump would retain the authority to remove commission members without cause and the commission would face no obligation to disclose its decision-making procedures.
The settlement discussions were also accelerated by legal trouble in the original lawsuit itself. U.S. District Judge Kathleen Williams raised serious doubts about whether Trump and the IRS are “sufficiently adverse” to each other for the case to proceed, noting that as sitting president Trump controls the very agencies he was suing. The court ordered both parties to respond by May 20, 2026 — the same deadline that may now be rendered moot by a settlement.
Acting Attorney General Todd Blanche, who controls the Justice Department nominally defending the IRS in the lawsuit, has been overseeing the settlement negotiations — a structural arrangement that critics note means Trump’s hand-picked DOJ official is negotiating with a president who controls him. Additional legal claims bundled into the proposed deal include $230 million related to the 2022 search of Trump’s Mar-a-Lago estate and claims related to the Russia investigation he faced during his first term.
Why It Matters
The constitutional dimensions of this proposed arrangement are far-reaching. The Judgment Fund exists under a specific congressional authorization to pay valid legal settlements — not to serve as a discretionary pool of cash under executive control. By proposing to redirect Judgment Fund money into a novel compensation commission without congressional authorization, the administration is effectively claiming the power to appropriate and distribute public money outside the normal legislative process, a power the Constitution expressly reserves to Congress under the Appropriations Clause.
Representative Jamie Raskin, ranking Democrat on the House Judiciary Committee, put the constitutional objection bluntly: “Congress never would have passed a $1.7 billion slush fund for his friends — this is completely outside of our constitutional framework.” Raskin also cited the Fourteenth Amendment, which bars the government from assuming any obligation incurred in aid of insurrection or rebellion. If the fund compensates January 6 defendants, he argues, the administration would be using federal taxpayer dollars to reward participants in what Congress formally certified as an insurrection against the constitutional transfer of power.
Beyond the structural questions, the arrangement tests a foundational principle of constitutional governance: that the executive branch cannot be judge, jury, and beneficiary in the same proceeding. Here, Trump filed the lawsuit, controls the DOJ that nominally defended against it, would appoint and remove the commission members distributing the funds, and would benefit from a political ally network newly enriched by public money. No meaningful independent check exists in the proposed structure.
Economic and Global Context
The Judgment Fund is not a small or obscure mechanism. It is a permanent standing appropriation — meaning it does not require annual renewal by Congress — that the federal government uses to settle valid court judgments and administrative claims. Historically it has been used to pay tort claimants, civil rights plaintiffs, and wrongful conviction settlements. Its repurposement here as a discretionary political compensation vehicle would set a precedent with significant long-term fiscal implications.
The government currently owes an estimated $35.46 billion in tariff refunds to U.S. importers following the Supreme Court’s February 2026 ruling that Trump’s IEEPA tariffs were unlawful. That existing fiscal obligation, combined with the proposed $1.7 billion Judgment Fund diversion and persistent deficit pressure from the One Big Beautiful Bill, illustrates a federal balance sheet under stress from multiple directions simultaneously. Analysts warn that normalizing the Judgment Fund as a presidential slush fund could expose the Treasury to far larger discretionary liabilities in future administrations.
Internationally, the story has attracted attention in European capitals and among allied governments already watching U.S. institutional norms with concern. Several Western European governments have quietly noted that the Trump administration’s pattern of using DOJ resources to pursue political adversaries and reward political allies — a pattern visible in settlements with Michael Flynn, Carter Page, and now potentially January 6 defendants — undermines the credibility of the U.S. rule-of-law framework that underpins treaty relationships and economic partnerships.
Implications
For Congress, the proposed settlement creates both an oversight imperative and a practical dilemma. Democrats have called for hearings and urged DOJ to refuse any settlement, while legal advocacy groups including Common Cause have written formal letters to Congress demanding action. But with Republicans holding majorities in both chambers, the prospect of meaningful legislative intervention before the deal is finalized is uncertain. If Democrats retake one or both chambers in November 2026, Raskin has stated the new majority would move to shut down the fund.
For the courts, the constitutional questions raised by Judge Williams — and the novel questions about using the Judgment Fund in this manner — could become the basis for litigation challenging the settlement if it is finalized. Legal standing to challenge executive use of the Judgment Fund is a complex issue, but the unprecedented nature of the arrangement may find willing plaintiffs.
For American voters, the story crystallizes a debate that has defined Trump’s second term: whether legitimate grievances about government overreach justify using government power and money to benefit the president’s political network, or whether such arrangements represent exactly the kind of self-dealing the Constitution was designed to prevent.
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