Trump trades $10 billion IRS lawsuit for $1.7 billion ally fund

On January 29, 2026, President Trump filed a lawsuit in the Southern District of Florida against the IRS and Treasury Department seeking at least $10 billion in damages. The suit claims the government failed to protect his confidential tax records after former IRS contractor Charles Littlejohn illegally accessed and leaked 15 years of Trump's returns to the New York Times in 2019-2020.

Littlejohn pleaded guilty in October 2023 and received the maximum five-year sentence in January 2024. Trump, Donald Jr., Eric Trump, and the Trump Organization are listed as plaintiffs.

On May 15, 2026, ABC News reported that Trump plans to drop the $10 billion suit in exchange for creating a $1.7 billion compensation fund for people who claim the Biden administration wrongfully targeted them. The money would come from the Treasury Department's Judgment Fund, a permanent appropriation Congress created in 1956 to pay court judgments and DOJ settlements.

The Judgment Fund operates under 31 U.S.C. 1304 and doesn't require annual congressional approval for individual payments.

A five-member commission would control the fund and issue awards by majority vote. Trump could remove commission members without cause. The commission wouldn't need to disclose its procedures, decision-making process, or the identities of recipients, according to CNBC's reporting.

The arrangement would give a presidentially controlled body authority to distribute $1.7 billion in taxpayer money with no public accountability requirement.

Eligible claimants would include anyone alleging harm from Biden-era law enforcement, including roughly 1,600 people charged in connection with the Jan. 6 Capitol attack. Trump pardoned most Jan. 6 defendants shortly after returning to office in January 2025. Entities associated with Trump himself could also file claims.

The fund would effectively pay taxpayer money to people the prior administration prosecuted and the current president already pardoned.

The settlement follows several DOJ payouts to Trump allies since January 2025. In March 2026, DOJ settled with Michael Flynn for $1.25 million over his malicious prosecution claim. In April 2026, DOJ settled Carter Page's surveillance lawsuit. In May 2025, the government paid Ashli Babbitt's family nearly $5 million.

Rep. Raskin's office cited these payments as evidence of a systematic pattern.

U.S. District Judge Kathleen Williams, appointed by President Obama in 2011, has raised questions about whether the lawsuit can proceed. In an April 2026 ruling, Williams noted that Trump's named adversaries are agencies under his own direction and questioned whether the parties are sufficiently adverse.

Williams set a May 20 deadline for Trump's personal lawyers and DOJ to explain the legal basis for a sitting president suing agencies he controls.

Rep. Jamie Raskin, Ranking Member of the House Judiciary Committee, issued a statement calling the proposed fund a fraud. Raskin argued that Congress never would have appropriated $1.7 billion for this purpose and that Trump can't raid the Judgment Fund to create a compensation scheme outside the constitutional framework.

Raskin described the arrangement as converting neutral government mechanisms into a presidential slush fund to build an army of political dependents.

The NYU Tax Law Center warned that any settlement involving IRS audit protections for the president would violate Section 7217 of the tax code. That statute makes it unlawful for the president or Executive Office employees to directly or indirectly request that the IRS terminate audits of any particular taxpayer, punishable by up to five years in prison.

The center noted that the Attorney General's settlement authority extends only to the specific matters referred to DOJ for defense, not to unrelated tax liabilities.

Democracy Forward filed an amicus brief on behalf of Common Cause, the Project on Government Oversight, and four former government officials arguing the court should block the settlement. The brief contends the case involves collusive litigation because the president controls both sides and that the original lawsuit is barred by the statute of limitations.

Common Cause separately wrote to Congress arguing that any settlement, whether monetary payments, IRS audit exemptions, or the compensation fund, would enable tax evasion and reward criminality.

The Judgment Fund has faced bipartisan oversight concerns for years. A 2019 GAO report found that the Treasury's reporting on fund balances and activities lacked transparency and reliability. Congress held oversight hearings in 2017 and considered the Judgment Fund Transparency Act, which would have required detailed public disclosure of payments. That bill never passed.

The fund paid out more than $3.3 billion in fiscal year 2023 alone, according to Treasury data. Using it for a politically directed compensation scheme would be unprecedented.