A federal judge has nullified the settlement that ended President Donald Trump’s lawsuit against the IRS, ruling that the case was filed for an “improper purpose” and used to lend judicial legitimacy to an agreement that would have protected Trump associates from tax scrutiny and created a $1.776 billion compensation fund.
U.S. District Judge Kathleen M. Williams issued the sharply worded decision Monday, concluding that the lawsuit and resulting settlement amounted to an exercise in self-dealing because Trump was effectively suing agencies controlled by his own administration. She also recommended sanctions and possible disciplinary action against attorneys involved in the case.
“This action was never about a party seeking judicial resolution of a legal issue or a factual dispute. The nature of the suit itself and the conduct of the Parties and counsel from its filing make plain that this was an attempt to use the Court to provide some legitimacy to an agreement to confer immunity to people and entities affiliated with the President and to earmark billions of dollars from American taxpayers to redress grievances not defined in the law,” Williams wrote.
Settlement created sweeping benefits
Trump, his two eldest sons, and the Trump Organization sued the IRS and Treasury Department in January over the unauthorized disclosure of their tax records by former IRS contractor Charles Littlejohn.
The lawsuit sought $10 billion in damages.
The administration announced a settlement May 18 under which Trump and the other plaintiffs would receive an apology but no direct financial payment. In return, they agreed to dismiss the lawsuit and withdraw two other administrative claims.
The deal also established what the Justice Department called the “Anti-Weaponization Fund,” a $1.776 billion program intended to compensate people who claimed they had been improperly targeted by previous administrations.
According to the Justice Department’s announcement, a five-member panel appointed largely by the attorney general would have been authorized to award apologies and monetary payments to approved claimants. The money was to come from the federal Judgment Fund, a permanent Treasury appropriation used to pay certain legal settlements.
A separate addendum reportedly barred the government from pursuing certain claims connected to Trump family tax returns and offered broad protection against actions characterized as “lawfare” or “weaponization.” Critics said those terms were left undefined and could have provided unusually broad immunity.
Judge finds court was used to legitimize deal
Williams concluded that the parties were not operating as genuine legal adversaries.
The judge found that the case was used to create the appearance of a legitimate court-supervised settlement even though the agreement was not submitted to her for approval before Trump’s attorneys voluntarily dismissed the lawsuit.
The dismissal notice made no reference to a settlement. The Justice Department announced the fund the same day.
Fund had already been abandoned
The ruling comes after the Justice Department said last month that it had abandoned plans to operate the fund.
Acting Attorney General Todd Blanche told Congress on June 2 that the administration was “not moving forward with the fund, period,” although he declined at the time to put the commitment in writing.
A separate federal judge in Virginia had already temporarily blocked the department from transferring money, reviewing claims, or making payments while a constitutional challenge proceeded.
Plaintiffs in that case argued that the program amounted to an unauthorized political rewards fund created without congressional approval. The Justice Department initially defended the program as a lawful mechanism for compensating people harmed by politically motivated government action.
Attorneys could face discipline
Williams’ ruling goes beyond eliminating the settlement.
She recommended that attorneys involved in the litigation face sanctions and potential professional discipline over their conduct, finding that the lawsuit was not pursued as an ordinary dispute between opposing parties.
The decision also leaves the original claims over the leak of Trump’s tax records unresolved, while wiping away the settlement provisions that would have created the fund and granted broader protections to Trump, his relatives, and affiliated businesses.
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