Trump may drop IRS lawsuit for $1.7 billion compensation fund

How would a $1.7 billion taxpayer fund work, who would qualify, and what would stop it from becoming a political payoff? Those questions now sit at the center of an extraordinary proposal in which Donald Trump was expected to drop his $10 billion lawsuit against the Internal Revenue Service if the government created a compensation pool for allies he says were wrongfully targeted under President Joe Biden.

ABC News reported that the fund would be financed through the Treasury Department’s Judgment Fund, a permanent, indefinite appropriation used to pay court judgments and compromise settlements against the United States. In practice, that means taxpayer dollars would cover claims through a commission that sources said would have total authority over distribution. Those same sources said Trump could remove commission members without cause and that the panel would not have to disclose its procedures or decision-making process, raising immediate questions about who would police the process and how claims would be measured.

The proposed pool could be enormous in scope. Sources said it might cover nearly 1,600 people charged in connection with the Jan. 6, 2021, Capitol attack, and it could also include entities associated with Trump. ABC also said the arrangement could include a public apology from the IRS as part of the deal. Critics quickly framed the proposal as a taxpayer-funded slush fund, and Senate Finance Committee Chairman Ron Wyden joined Democrats in denouncing it as corruption.

The stakes are unusually high because Trump is not only the plaintiff in the IRS case; he is also the president overseeing the federal government defendants. His lawsuit, filed on January 29, 2026, in the Southern District of Florida by Trump, Donald Trump Jr., Eric Trump, and the Trump Organization, seeks at least $10 billion over the 2019 leak of Trump’s tax returns by former IRS contractor Charles Littlejohn, who was later convicted and sentenced to five years in prison. The filing also touches claims tied to the 2022 search of Mar-a-Lago and the Russia investigation.

U.S. District Judge Kathleen Williams had already set a May 20 deadline for written submissions on whether the case can proceed in federal court at all, including whether a sitting president can sue the agencies he oversees. The Justice Department declined to comment, and the White House, IRS and Treasury Department did not immediately respond to requests for comment. For now, the proposal remains unfinished, but its structure has already turned a legal dispute into a test of how far executive power and public money can be stretched in service of political allies.