Trump drops $10bn lawsuit against IRS in exchange for a settlement fund

US President Donald Trump has dropped a $10bn (£7.4bn) lawsuit against the IRS over the leak of his tax returns, in exchange for his administration creating a $1.7bn fund to compensate people who allege they were unfairly investigated.

Trump sued the Internal Revenue Service in January, alleging the agency failed to stop a former contractor from leaking his tax returns to media during his first term.

The move comes two days before a 20 May deadline for both sides to address whether a legitimate legal dispute existed - given that Trump now oversees the IRS through his administration.

Democrats have criticised the settlement as an unconstitutional "slush fund" for Trump and his allies.

On Monday, a spokesperson for Trump's legal team said that the president is "entering into this settlement squarely for the benefit of the American people".

"He will continue his fight to hold those who wrong America and Americans accountable," the spokesperson added.

Legal experts, who were asked last week to weigh in on the matter by the judge overseeing the case, called Trump's lawsuit "unprecedented".

"This case is unprecedented: A sitting president seeks monetary damages for alleged harm to his personal interests from an executive agency that he controls," the experts wrote.

The experts cited Trump's own statements that he controls both the IRS and the DOJ lawyers handling the case.

Shortly after the dismissal was filed by Trump's legal team, the justice department announced an agreement to establish an "anti-weaponisation fund" that will provide a "systematic process to hear and redress claims of those who suffered under weaponisation and lawfare".

The plaintiffs, which include Trump's sons and the Trump Organization, will receive an apology, but no monetary compensation, the department said.

The fund will consist of a five-member commission, four of those appointed by the Attorney General, and will receive $1.776 billion to allow the justice department to settle and pay cases.

A report on who received payments will be sent to the Attorney General every quarter.

"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," said Acting Attorney General Todd Blanche.

More than 90 Democrats in the House of Representatives said they had filed a motion to block the settlement.

"This case is nothing but a racket designed to take $1.7 billion of taxpayer dollars out of the Treasury and pour it into a huge slush fund for Trump at DOJ to hand out to his private militia of insurrectionists, rioters, and white supremacists, including those who brutally beat police officers on January 6, 2021, and sycophant accomplices to his election stealing schemes," Maryland representative Jamie Raskin said in a statement.

In the lawsuit, Trump, his sons and the Trump Organization had claimed that nothing had been done to prevent the leak of information by the former IRS contractor, Charles "Chaz" Littlejohn.

In September 2020 - just ahead of the November presidential election - that information formed the basis of an extensive New York Times investigation into Trump's tax returns. It revealed that Trump paid only $750 in federal income taxes the year he won the presidency in 2016, and no taxes at all in 10 of the previous 15 years.

Trump released the documents himself two years later, in 2022.

Littlejohn pleaded guilty in 2023 to stealing tax data from Trump and thousands of wealthy Americans while working as a contractor for the IRS.

The following year, he was sentenced to five years in prison.