President Donald Trump filed a $10 billion lawsuit against the IRS and Treasury Department in January 2026 over the 2019 leak of his tax returns to media outlets [1, 2, 3]. Today, reports surfaced that Trump is preparing to drop the lawsuit in exchange for a $1.7 billion fund intended to compensate political allies he claims were targeted by the Biden administration [1, 2, 3]. The fund is described as a "weaponization" compensation pool that could include payments to individuals such as January 6 rioters [1, 2, 3].
The settlement reportedly may also include the IRS dropping ongoing audits of Trump, his family, and his businesses [1, 2]. However, some legal experts question whether the lawsuit is valid because Trump, as president, is suing a federal agency he controls, raising doubts about whether both parties qualify as adversaries in litigation. Judge Kathleen Mary Williams has said, "It's unclear whether Trump and the IRS are actually adverse parties who are eligible to be in litigation against each other" [2]. The next critical deadline is May 20, 2026, when Trump and the IRS must file briefs on the lawsuit's validity. A hearing is scheduled for May 27, 2026, to decide the issue [2].
Trump himself would not be eligible to claim money from the $1.7 billion fund, though entities associated with him might be eligible [3]. Trump's legal team said the IRS allowed a politically motivated employee to leak his private tax data and that the president "continues to hold those who wrong America and Americans accountable" [2].
Democratic lawmakers have criticized the settlement harshly. Sen. Ron Wyden (D-Ore.) called the settlement "among the most corrupt acts in American political history" and a theft of taxpayer dollars for a slush fund [1]. Sen. Chris Van Hollen (D-Md.) described it as a payoff to political allies using tax dollars [1]. Rep. Jamie Raskin said Trump is orchestrating "a $1,700,000,000 fraud on the American taxpayer to line the pockets of his MAGA political allies" [1].
The reported settlement comes days before the court is set to weigh in on the suit's validity. Trump and the IRS must file legal briefs by May 20, 2026, ahead of the May 27 hearing [2].
