Washington. US President Donald Trump on Monday withdrew his $10 billion lawsuit against the Internal Revenue Service over the leak of his tax returns amid reports that his administration was considering the creation of a fund to compensate his political allies who believe they have been wrongly investigated and prosecuted.

Democrats and government watchdogs immediately pledged to fight what they called a “corrupt” and unprecedented resolution, warning that the arrangement would unjustly enrich people close to the president with taxpayer dollars and open the door to meritless claims of political persecution.

Trump's lawyers disclosed the dismissal of the case in a filing Monday in federal court in Florida, where the president sued earlier this year. The filing did not disclose the terms of any resolution, but ABC News first reported last week that Trump was prepared to drop his lawsuit as part of a deal that would create a $1.7 billion fund to pay allies of the president who believe they were mistreated by the Biden administration's Justice Department.

If established, the fund would represent not only a highly unorthodox resolution but also a further demonstration of the administration's eagerness to reward allies who before Trump came to power were investigated and in some cases charged and convicted. Most notably, the president on his first day back in office pardoned or commuted the sentences of supporters who rioted at the US Capitol on Jan. 6, 2021. His Justice Department since then has approved payouts to supporters entangled in the Trump-Russia investigation and investigated and prosecuted some of his perceived adversaries.

“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,” Representative Jamie Raskin, the top Democrat on the House Judiciary Committee, said in a statement.

Trump’s attorneys suggested in their court filing seeking to dismiss the case that the resolution would not be reviewable by a judge. But a group of 93 members of Congress filed a brief, teeing up a challenge.

Trump Has Long Raised ‘Weaponization’ Claims
It was not immediately clear who precisely will stand to benefit from the reported fund but its creation reflects Trump’s long-running claims that the Justice Department during the Biden administration was weaponized against him.

He has cited as proof the since-dismissed criminal charges he faced between his first and second terms of conspiring to overturn the results of the 2020 presidential election he lost and of retaining classified documents at his Mar-a-Lago estate in Florida. Several aides of his were also prosecuted, as were hundreds of Trump supporters who stormed the US Capitol in an effort to halt the certification of election results on Jan. 6, 2021.

Merrick Garland, who served as attorney general during the Biden administration, has repeatedly denied allegations of politicization and has said his decisions followed facts, the evidence, and the law. His Justice Department also investigated Biden for his handling of classified information and brought separate tax and gun prosecutions against Biden’s son Hunter.

Nonetheless, Trump’s current Justice Department has actively pursued the president’s retribution campaign and grievances, bringing criminal charges against some of his political opponents and initiating a wide-ranging investigation that aims to establish a years-long conspiracy between law enforcement and intelligence officials to destroy Trump’s political prospects and keep him power.

No charges have been brought in that investigation and it is not clear that any ever will be.

Trump's Lawsuit Followed the Leak of Tax Returns
Trump filed a lawsuit earlier this year in a Florida federal court, alleging that a previous leak of his and the Trump Organization’s confidential tax records caused “reputational and financial harm, public embarrassment, unfairly tarnished their business reputations, portrayed them in a false light, and negatively affected President Trump, and the other Plaintiffs’ public standing.”

The president’s sons, Donald Trump Jr. and Eric Trump, are also named plaintiffs in the suit.

In 2024, former IRS contractor Charles Edward Littlejohn -- who worked for Booz Allen Hamilton, a defense and national security tech firm -- was sentenced to five years in prison after pleading guilty to leaking tax information about Trump and others to two news outlets between 2018 and 2020.

The outlets were not named in the charging documents, but the description and time frame align with stories about Trump’s tax returns in The New York Times and reporting about wealthy Americans’ taxes in the nonprofit investigative journalism organization ProPublica. The 2020 New York Times report found Trump paid $750 in federal income tax the year he first entered the White House, and no income tax at all some years, thanks to reported colossal losses.

In the first sign that a settlement was coming, lawyers for the president asked a federal judge last month to pause the case for 90 days while the two sides work to reach a settlement or resolution.

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

When asked in February how he would handle any 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.”

A group of lawyers wrote to the court this month, expressing concerns about whether the Justice Department was properly insulated from the president’s control of the case. Additionally, several ethics watchdog groups have filed friend-of-the-court briefs challenging the president’s lawsuit.

Skye Perryman, president and CEO of Democracy Forward, an advocacy group that filed an earlier brief, said in response to the dismissal: “This case was always a sham, and another ploy by the President to access taxpayer funds to line his pockets.”

Perryman vowed that her group would continue to fight the settlement.

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