Story Highlights
- Trump is expected to drop his $10 billion IRS lawsuit and a separate $230 million claim tied to the Mar-a-Lago search in exchange for the fund’s creation.
- The proposed $1.7 billion fund would be overseen by a commission whose members Trump can remove without cause and that is not required to disclose its decision-making.
- A federal judge had already raised doubts about whether Trump could sue a government agency he himself controls, ordering both sides to respond by May 20.
What Happened
Sources familiar with the negotiations told ABC News that President Donald Trump is poised to drop his $10 billion lawsuit against the Internal Revenue Service and related legal claims in exchange for a $1.7 billion taxpayer-funded compensation program. The fund would be structured as a commission empowered to disburse money from the Treasury Department’s Judgment Fund — a permanent appropriation normally used to pay court judgments and settlement agreements — to individuals and entities that allege they were harmed by what the administration calls the Biden administration’s “weaponization” of the legal and tax systems.
The lawsuit arose from the admitted conduct of Charles Littlejohn, a former contractor at Booz Allen Hamilton working inside the IRS who illegally accessed and disclosed private tax returns belonging to Trump, his family members, and the Trump Organization between 2019 and 2020. Littlejohn was caught, prosecuted, and convicted. In January 2026, Trump and two of his sons filed a $10 billion civil suit in Miami federal court, alleging that the IRS bore institutional liability for the security failures that enabled the breach.
The fund, if created, would extend well beyond Trump’s own claims. It would be available to the nearly 1,600 individuals charged in connection with the January 6, 2021 Capitol attack — many of whom were pardoned by Trump early in his second term — as well as potentially entities associated with Trump himself, though Trump is not expected to personally receive any payment under the settlement’s terms. The commission’s five members would be appointed under arrangements giving the president authority to remove them without cause, and it would face no legal obligation to publicly disclose how its award decisions are made.
The settlement discussions accelerated partly because the lawsuit had begun facing serious legal headwinds. U.S. District Judge Kathleen Williams questioned whether Trump and the named defendants — the Treasury Department and IRS — are “sufficiently adverse” to each other when the president also controls those agencies. She ordered both sides to justify by May 20 why the case should proceed. The administration also separately sought an IRS public apology and a waiver of an outstanding IRS audit as conditions of the deal.
Why It Matters
The proposed arrangement raises foundational questions about the constitutional power of the purse and the boundaries of executive authority. The Judgment Fund exists to satisfy adjudicated legal claims against the government — not to serve as a discretionary disbursement vehicle under presidential control. Critics, including congressional Democrats and independent legal scholars, argue that directing Judgment Fund money through a commission that bypasses normal disclosure requirements and agency processes is without constitutional basis.
Rep. Jamie Raskin, the top Democrat on the House Judiciary Committee, described the arrangement as an “outrageous desecration of congressional power of the purse,” noting that Congress never voted to create a fund structured in this way. Raskin also raised concerns under the Fourteenth Amendment, which prohibits the federal government from assuming any obligation incurred in aid of insurrection or rebellion, arguing that compensating January 6 defendants with public funds could violate that provision.
Sen. Ron Wyden, the top Democrat on the Senate Finance Committee, characterized the deal as among the most corrupt acts in American political history, describing the lawsuit itself as a “shakedown of the American people.” Even some administration officials have reportedly raised internal ethical objections, given that the arrangement involves the president exerting quasi-direct control over the disbursement of more than a billion dollars to his political allies and supporters.
The constitutional separation-of-powers concern extends beyond partisan politics. The Judgment Fund is administered through a process that normally requires agency sign-off and is subject to congressional disclosure. The proposed commission structure would decouple those payments from those procedures entirely, transferring effective control to the president alone — a model that has no meaningful precedent in the fund’s decades of operation.
Economic and Global Context
The proposed $1.7 billion fund represents a significant sum drawn from existing permanent government appropriations, requiring no new congressional authorization. The Judgment Fund is financed through general Treasury receipts, meaning the payments would ultimately be borne by American taxpayers without a specific legislative vote approving that expenditure.
Earlier precedents suggest the political and financial stakes are real. In March 2026, the DOJ settled a lawsuit with former National Security Adviser Michael Flynn for over a million dollars after he alleged wrongful prosecution by the FBI. In April 2026, the DOJ settled with former Trump campaign adviser Carter Page over surveillance conducted in connection with the Russia investigation. Those settlements, while individually smaller, established a pattern of the DOJ reaching financial agreements with individuals connected to Trump’s political orbit.
The financial scale of the proposed fund far exceeds those individual settlements. Legal analysts have warned that if the fund is created without meaningful oversight, it could invite hundreds of additional claims from pardoned January 6 defendants and Trump-affiliated organizations — potentially extending the fund’s actual disbursements well beyond the initial $1.7 billion envelope.
Implications
A federal court response remains one of the most immediate variables. If Judge Williams determines the IRS lawsuit lacks the legal standing to proceed because Trump controls the defendant agencies, the settlement may collapse before being finalized. The May 20 deadline set by the court for both sides to respond creates a tight timeline that could either force the administration’s hand or prompt it to accelerate the settlement to avoid an unfavorable ruling.
If the fund is created, Democrats have made clear they would treat it as a top legislative priority to dismantle should they retake one or both chambers of Congress in the November midterms. Raskin explicitly stated that Democrats would move to shut it down if given the majority, framing it as a test case for the role of congressional oversight in constraining executive financial power.
For the broader American public, the case highlights an underexamined mechanism of executive power — the Judgment Fund — and raises legitimate questions about its susceptibility to political direction. Regardless of the outcome, the episode is likely to generate bipartisan interest in tightening the statutory guardrails around how settlement funds are managed, disclosed, and authorized in cases where the executive branch itself is a party.
Sources
“Trump poised to drop IRS suit, launch $1.7B ‘weaponization’ fund for allies: Sources”Â
