Trump to Drop $10B IRS Lawsuit in Exchange for $1.7 Billion Taxpayer-Funded Compensation Pool for His Allies

What's Happening

President Trump is expected to drop his $10 billion lawsuit against the Internal Revenue Service — and in return, the federal government would create a $1.7 billion compensation fund financed by Treasury Department money, according to ABC News, which broke the story on May 14, 2026.

The fund would pay out claims from individuals who allege they were wrongfully targeted by what Trump calls the Biden administration's "weaponization" of the legal system.

That pool of potential recipients includes the nearly 1,600 people charged in connection with the January 6, 2021 Capitol riot — most of whom Trump already pardoned.

The Structure of the Deal

A five-member commission would have total authority to award payments from the $1.7 billion fund. According to ABC News, the commission would NOT be required to disclose its procedures or the identities of recipients.

Trump retains the power to remove commissioners without cause.

The president who filed the lawsuit controls the commission deciding who gets paid.

The settlement terms would technically bar Trump personally from receiving payments tied to the three legal claims he's dropping — his $10B IRS suit, $230 million in Mar-a-Lago search claims, and claims related to the Russia investigation. But according to ABC News, entities associated with Trump are NOT explicitly barred from filing additional claims.

So the president can't personally collect, but his companies potentially can.

The IRS Lawsuit Background

Trump's original IRS lawsuit wasn't invented from thin air. Former IRS contractor Charles Littlejohn did illegally leak Trump's private tax return data between 2019 and 2020. Littlejohn was convicted and sentenced to five years in prison. The leak was real. The legal grievance was legitimate.

But U.S. District Judge Colleen Kollar-Kotelly had already raised serious questions about whether Trump's $10 billion lawsuit against a government he now controls could even proceed — the core problem being that a sitting president suing his own executive branch agencies lacks a genuinely adversarial legal posture, according to Ground News.

The settlement conveniently resolves that standing problem before a court deadline next week. Critics argue that's less about justice and more about avoiding a courtroom ruling that could have dismissed the case entirely.

What Mainstream Coverage Is Getting Wrong

Left-leaning outlets like the New York Times are framing this almost exclusively as a political slush fund story. That framing captures part of the picture, but not all.

Those same outlets spent years defending aggressive DOJ investigations and IRS enforcement actions against conservative groups without applying consistent scrutiny. The 2013 IRS targeting of Tea Party nonprofits was real. Littlejohn's leak was real. The FBI's Mar-a-Lago raid produced zero criminal charges against Trump. These aren't invented grievances.

At the same time, right-leaning coverage is largely treating this as a righteous correction of Biden-era abuses — without grappling with the structural corruption embedded in this specific mechanism.

Both framings are letting their teams off the hook.

The Structural Problem

The question of whether some January 6 defendants or Trump associates were treated unfairly is separate from how this fund operates.

No transparency requirements. No independent oversight. A commission the president can stack and fire at will. Taxpayer money — YOUR money — flowing to recipients whose identities don't have to be disclosed.

This is NOT how a legitimate government compensates victims of injustice. There are existing legal mechanisms — courts, independent inspectors general, congressional appropriations — specifically designed to prevent one person from controlling who gets paid and how much.

This bypasses all of them.

If the Biden administration had proposed a secret $1.7 billion fund, run by a commission Biden alone could fire, to pay out claims from Democratic allies, the reaction from the right would have been — correctly — volcanic. The standard doesn't change based on who implements it.

Fiscal Reality Check

Republican fiscal hawks who spent years screaming about deficit spending and government waste have been conspicuously quiet. The same caucus that fought over every dollar in domestic spending is apparently fine with $1.7 billion in taxpayer money flowing through an opaque presidential commission.

$1.7 billion is not a rounding error. It's real money from real Americans who deserve to know where it goes and why.

What This Means Going Forward

If this deal goes through, a sitting president will have created a precedent: sue the government you run, then negotiate a taxpayer-funded settlement that benefits your political network, administered by people you can fire, with no obligation to tell the public who got what.

The next president — of either party — will have that template available to follow.