Trump Poised to Drop $10 Billion IRS Suit for $1.7 Billion 'Weaponization' Fund

President Donald Trump is preparing to drop his $10 billion lawsuit against the Internal Revenue Service in exchange for the creation of a $1.7 billion taxpayer-funded compensation pool for political allies who claim they were targeted by the Biden administration, multiple administration officials confirmed this week. The arrangement, which Democrats have already branded a "slush fund," would produce one of the most unusual settlements in the history of the federal government — a sitting president collecting a massive payout from an executive-branch agency he himself controls.

The lawsuit traces back to a 2018-2020 leak in which Charles Littlejohn, a Booz Allen Hamilton contractor working inside the IRS, illegally accessed and copied the tax returns of thousands of wealthy Americans, including Trump and members of his family. Littlejohn was sentenced to five years in federal prison in 2024. Trump filed his suit in February seeking $10 billion in damages, and the Justice Department began discussing settlement terms with the Trump legal team earlier this spring.

Under the terms now circulating in Washington, a newly created commission would distribute roughly $1.7 billion in taxpayer money to anyone who can credibly claim to have been harmed by what the administration is calling the Biden-era "weaponization" of the legal system. Eligible recipients are expected to include many of the nearly 1,600 individuals charged in connection with the January 6, 2021, attack on the Capitol, as well as entities tied to Trump himself. A formal public apology from the IRS is also part of the proposed deal, according to people briefed on the discussions.

Democrats erupted at news of the framework on Thursday. Sen. Elizabeth Warren of Massachusetts called the proposed settlement "an insane level of corruption — even for Trump," while Sen. Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, said any deal that allowed the president to remove commission members without cause amounted to a private fund operating with no oversight. Internal discussions, according to multiple sources, have also touched on whether the agreement might include a provision halting IRS audits of the president, his family and their business interests.

The Justice Department has declined to confirm any specific terms. Acting Attorney General Todd Blanche told Fox News on Friday that "there is absolutely no public information around any indictment that's been leaked or discussed," and an IRS spokesperson said the agency does not comment on pending litigation. Career prosecutors inside Main Justice have raised internal concerns about the optics of the deal, but Trump-aligned officials are pushing to finalize the framework within the coming days. The Tax Law Center at NYU School of Law warned in a statement that giving a sitting president the unchecked authority to direct taxpayer dollars to political allies "would set a dangerous and lasting precedent."