Trump drops IRS lawsuit, establishes $1.77bn anti-weaponisation fund

President Donald Trump has withdrawn his $10bn lawsuit against the Internal Revenue Service (IRS) over a leak of his tax returns and announced his administration will create a $1.77bn anti-weaponisation fund to compensate some of his political allies.

The court filing, released Monday in Florida, did not disclose the terms of the deal, including whether either party settled.

The Department of Justice (DOJ) on Monday announced the establishment of the Anti-Weaponisation Fund, which it said would “provide a systematic process to hear and redress claims of others who suffered weaponisation and lawfare”.

The DOJ said in a press release that the fund was part of the settlement agreement.

ABC News first reported last week that Trump was prepared to drop the lawsuit as part of a deal creating the fund to pay allies he considers wrongly investigated and prosecuted.

Trump, his adult sons Donald Trump Jr and Eric Trump, and the Trump Organization sued the IRS in January, arguing the agency should have done more to prevent a former contractor from disclosing their tax returns to media outlets during Trump’s first term.

The case stemmed from former IRS contractor Charles Littlejohn’s leak of Trump’s tax returns to outlets including The New York Times and ProPublica in 2019 and 2020.

Those returns showed Trump paid little or no income taxes in many years, the Times reported in 2020.

Prosecutors charged Littlejohn in 2023 with leaking tax records of Trump and thousands of other wealthy Americans to the media, saying he was motivated by a political agenda. Littlejohn pleaded guilty to improper disclosures, and a judge sentenced him to five years in prison.

Trump filed the lawsuit personally, not in his official capacity as president.

While the court filing did not mention the terms of any deal, news that Trump would create a fund to protect his political allies sparked backlash.

Representative Jamie Raskin, a Democrat from Maryland, called the idea “unconstitutional”.

“This, of course, is a political grievance fund that Donald Trump can use to pay off his friends,” Raskin, the top Democrat on the House Judiciary Committee, said in an interview Sunday on ABC News’ This Week.

“If these people have a valid cause of action, they should bring it to the court like every other American does, and use the system of due process, and prove things by clear and convincing evidence, or a preponderance of evidence. Go and prove it. But the idea that Donald Trump can just pass it out like a pardon is absurd,” he said.

California Governor Gavin Newsom also criticised the president amid reports of the deal.

“Donald Trump wants to settle his joke lawsuit against his own IRS department to hand out $1.7 BILLION of OUR TAX DOLLARS to Jan. 6th insurrectionists and his cronies,” Newsom said in a post on X.

“It is an outrage that the American taxpayers are having to pay for this and that we have a president who is exercising such open corruption in front of everyone and expecting us to go along with it,” Representative Pramila Jayapal, a Democrat from Washington, told the progressive MeidasTouch network.

Despite the criticism, it is not clear who would specifically benefit from the fund.

Trump has long claimed that the DOJ under his predecessor, President Joe Biden, a Democrat, was weaponised against him, citing criminal charges that he conspired to overturn the 2020 election results — which Trump lost by more than seven million votes — and that he retained classified documents at his Mar-a-Lago estate.

Merrick Garland, Biden’s attorney general, denied allegations of politicisation. The Justice Department also investigated prominent Democrats, including Biden’s son Hunter Biden and former US Senator Bob Menendez of New Jersey.

“The machinery of government should never be weaponised against any American, and it is this Department’s intention to make right the wrongs that were previously done while ensuring this never happens again,” Acting Attorney General Todd Blanche said in a release.

However, the Trump administration has actively pursued cases against perceived political enemies, including former FBI Director James Comey, former Federal Reserve Chairman Jerome Powell, Fed Governor Lisa Cook, New York Attorney General Letitia James, Arizona Senator Mark Kelly, and California Senator Adam Schiff.

The DOJ said legal precedent supports the fund, citing the “Keepseagle” programme under former President Barack Obama, a Democrat, which created a fund to address allegations of racism against the federal government.

The White House referred Al Jazeera to the DOJ for comment. The DOJ did not respond.

The government watchdog group Citizens for Responsibility and Ethics (CREW) announced on X it would investigate how the funds would be used.

“While Americans are struggling with an affordability crisis, President Trump plans to use nearly $1.8bn in taxpayer money to pay off his friends and allies—including potentially the violent insurrectionists who attacked the Capitol on January 6th,” CREW President Donald K Sherman said in a statement provided to Al Jazeera.

“By settling his absurd $10bn lawsuit against his own administration, Trump and the Justice Department just engaged in the most brazen act of self-dealing in the history of the presidency, and did so quickly in order to avoid the scrutiny of the judicial process, while quite likely violating the Constitution’s Domestic Emoluments Clause in the process. This is one of the single most corrupt acts in American history.”

Lawyers for the president asked a federal judge in April to pause the case for 90 days while the two sides worked to reach a settlement.

“This limited pause will neither prejudice the parties nor delay ultimate resolution,” the April filing said. “Rather, the extension will promote judicial economy and allow the Parties to explore avenues that could narrow or resolve the issues efficiently.”

Asked in February how he would handle potential damages from the case, Trump said, “I think what we’ll do is do something for charity.”

“We could make it a substantial amount,” he said at the time. “Nobody would care because it’s going to go to numerous very good charities.”

The litigation raised novel legal questions, including conflicts of interest, about whether a president can sue his own government. It is unclear if the judge will accept Trump’s withdrawal.

Under the US Constitution, federal courts may only hear genuine disputes between litigants with opposing stakes in the outcome.

US District Judge Kathleen Williams in Miami, who oversees the lawsuit, wrote last month that it was unclear whether the parties were “truly antagonistic to each other”.

Williams had set a court hearing for May 27 to hear arguments on whether to dismiss the case on those grounds.