Trump Drops $10 Billion IRS Lawsuit After Reports of Secret Settlement
A $10 billion lawsuit filed by President Donald Trump, his two eldest sons, and the Trump Organization against the IRS and Treasury Department was voluntarily dismissed with prejudice on Monday, May 18, 2026—preventing the plaintiffs from ever refiling the same claims.
Lawsuit Background
The lawsuit, originally filed in late January 2026, alleged that the IRS and Treasury Department failed to prevent the leak of confidential tax information belonging to Trump and the Trump Organization. The complaint asserted that Charles "Chaz" Littlejohn, a former IRS contractor employed by Booz Allen Hamilton, illegally obtained and disclosed the plaintiffs' tax returns to media outlets including The New York Times and ProPublica between 2018 and 2020.
Littlejohn was sentenced to five years in prison in 2024 after pleading guilty to unauthorized disclosure of thousands of tax returns, including those belonging to Trump and other wealthy individuals such as Jeff Bezos and Elon Musk.
The plaintiffs sought at least $10 billion in damages, alleging "reputational and financial harm, public embarrassment," and negative effects on President Trump's support among voters in the 2020 presidential election.
Dismissal and Court Proceedings
The court filing did not state the reason for the dismissal. The move occurred two days before a court deadline for the Department of Justice (DOJ) and Trump's attorneys to address whether a "case and controversy" existed—a requirement for federal court jurisdiction. U.S. District Judge Kathleen M. Williams had previously questioned whether an actual controversy existed given President Trump's control over the Justice Department.
In the dismissal filing, Trump's lawyers argued the court did not need to weigh in because the plaintiffs were voluntarily dismissing the case and the administration had never filed a formal response.
Reports of Potential Settlement
The dismissal followed reports that the DOJ was negotiating a settlement that could involve a $1.7 billion fund. According to a report from ABC News citing sources familiar with the matter, Trump was expected to drop the suit in exchange for the creation of a fund composed of taxpayer dollars. The report described the fund as an "Anti-Weaponization Fund" intended to compensate individuals who argue they were wrongly targeted by previous administrations, including those charged in connection with the January 6, 2021 Capitol riot.
ABC News reported that the fund, if created, would have limited oversight, with commissioners appointed to distribute money not required to publicly justify awards. Final terms of any such fund have not been announced. NBC News stated it had not independently confirmed the report, and a Justice Department spokesperson did not respond to a request for comment. The court filing did not mention any fund.
Treasury Department Actions
Earlier in the week, Treasury Secretary Scott Bessent announced the termination of $21 million in federal contracts with Booz Allen Hamilton. Bessent stated that the firm "failed to implement adequate safeguards to protect sensitive data," including the confidential taxpayer information it had access to through its contracts with the Internal Revenue Service.
Legal Challenge by Former Judges
On May 20, 2026, a group of 35 former federal judges filed a request arguing that the court was deceived and should investigate potential fraud related to the dismissal. The judges cited the undisclosed settlement and its terms, including the reported $1.776 billion fund and an addendum that allegedly shields plaintiffs from IRS enforcement on past tax returns. Judge Williams dismissed the original case with prejudice, noting no reference to a settlement.
Responses
The White House referred questions to the DOJ. Representatives for the Treasury Department, the IRS, and Trump's legal team did not immediately respond to requests for comment.