Trump expected to drop IRS suit for $1.7 billion victims fund

Donald Trump is expected to abandon his $10 billion lawsuit against the IRS and the Treasury Department in exchange for a $1.7 billion fund for people he and his allies say were victimized by governmental weaponization. The proposed deal would move far beyond one tax dispute: it would raise the question of who would control a huge pool of money, who would qualify as a victim, and whether taxpayer dollars could be redirected into an ideologically driven settlement.

Trump, Donald Trump Jr., Eric Trump and the Trump Organization filed the case on Jan. 29, 2026, accusing the IRS and Treasury of unlawfully allowing an IRS contractor to leak confidential tax return information to the media in 2019 and 2020. The dispute centers on tax data tied to Trump, his adult sons and their company, and it follows the sentencing of former IRS contractor Charles Littlejohn, who was sent to prison for five years on Jan. 29, 2024, after pleading guilty to unauthorized disclosure of tax return information.

The case quickly became a test of presidential power as much as privacy. On April 17, 2026, lawyers for Trump and the IRS told a federal court they were in settlement talks and asked for a 90-day pause. A week later, on April 24, a federal judge questioned whether Trump can sue agencies he effectively oversees, pressing the larger constitutional issue of whether a president can bring a damages case against the federal government he controls.

That concern now collides with the reported settlement framework. The $1.7 billion fund would be aimed at compensating allies who say they were targeted by the Biden administration, a structure that invites conflict-of-interest questions and patronage fears because any payout or settlement would likely be financed with public funds. If the money is real, so is the precedent: a private grievance over leaked tax records could become a government-backed vehicle for deciding whose political pain counts.

Democrats on the Senate Finance Committee, including Ron Wyden, Elizabeth Warren and Chuck Schumer, have already warned that weaponizing the IRS against political opponents would be illegal and an abuse of power. Their warning now cuts both ways. The broader Trump administration has also moved against perceived political enemies, including through an interagency weaponization working group that several U.S. officials have acknowledged exists. What begins as a tax lawsuit could end as a blueprint for turning presidential grievance into public money.