New reporting indicates President Donald Trump may soon abandon his $10 billion lawsuit against the Internal Revenue Service in exchange for the creation of a $1.7 billion fund to compensate people who say they were improperly targeted by the Biden administration.
ABC News, citing sources, reported that the proposed settlement would tap the Treasury Department’s Judgment Fund—the account used to pay court judgments and settlements involving the federal government—and would include a public apology from the IRS for the leak of Trump’s tax returns during his first term in office.
Top House Judiciary Democrat Jamie Raskin denounced the reported terms, characterizing the arrangement as a scheme to funnel taxpayer dollars to Trump’s political allies. Raskin said the plan would amount to an unprecedented use of federal resources to benefit supporters and warned it could be the start of a broader effort to turn impartial government mechanisms into a political slush fund.
According to the reported draft terms, Trump himself would be barred from directly receiving payments tied to the three claims at issue, but entities connected to him would not be explicitly prevented from filing additional claims. The settlement reportedly would give the president authority to remove members of the commission that would administer the fund without cause, and the commission would not be required to disclose its procedures or decision-making about awarding more than a billion dollars—raising concerns about oversight and transparency.
The suit centers on the 2019–2020 leaks of Trump’s tax returns, which were published by major news outlets and later tied to a former IRS contractor, Charles Littlejohn, who pleaded guilty in 2024 to unlawfully disclosing tax information. The lawsuit alleges the IRS failed to prevent those disclosures. Reporting on the leaks showed reporting that raised questions about Trump’s tax practices and identified years in which he paid little or no federal income tax.
Critics say the settlement would pose a stark conflict of interest because the IRS and Department of Justice now answering questions about the suit are both subject to the president’s influence. Federal judges have questioned whether a lawsuit is valid when the nominal adversaries are entities effectively under the control of the sitting president. U.S. District Judge Kathleen M. Williams of the Southern District of Florida required the parties to brief by May 20 whether there is genuine adverseness between Trump and the IRS; some legal observers noted the DOJ could still settle the case before the court ruled.
Several Democrats reacted strongly to the reported deal. Rep. Dan Goldman said a preemptive settlement would shield Trump from future audits, create a secret fund with little transparency, and protect him from further scrutiny. Rep. Don Beyer called the possibility an attempt to steal billions from taxpayers, while Sen. Elizabeth Warren described a pre-judgment settlement as a “massive, unprecedented scandal” and urged Congress to block such payouts. Warren has introduced legislation to bar presidents, vice presidents, and their families from collecting federal settlement money while in office and to require independent counsel for agencies handling such claims, though the bill has seen little progress in a Republican-controlled Congress.
Bharat Ramamurti, a former deputy director of the White House National Economic Council, called the lawsuit matter a “massive scam” and compared it unfavorably to other proposals by Trump to use federal funds for personal or political projects.
If the settlement were to be approved and combined with other possible deals—reports have said the White House and DOJ discussed ending IRS audits into Trump and his businesses—the financial consequences for Trump could be significant. Trump and his family have already benefited financially from their public roles in various ways, and critics warn a large settlement could add billions more to the family’s coffers.
Supporters of preventing such a deal argue Congress must reassert its power of the purse to stop what they see as brazen use of taxpayer dollars for political purposes. Opponents of intervention note that settlements are a normal part of legal practice and that the Judgment Fund is the routine vehicle for paying judgments against the United States.
As of the latest reports, settlement talks were ongoing and the terms were not final. The situation raises immediate legal and political questions about conflicts of interest, the proper use of the Judgment Fund, and whether a sitting president can leverage control of government institutions to secure a large, politically charged settlement.
