Obama-Appointed Judge Reopens Trump IRS Lawsuit, Demands Answers on $1.776 Billion Fund

Federal Judge Reopens Trump Family IRS Lawsuit, Orders Review of $1.776 Billion Settlement Fund

A federal judge in Florida on Friday reopened a lawsuit filed by President Donald Trump, his sons, and the Trump Organization against the Internal Revenue Service, directing the parties to address whether a recent settlement should stand. The case, originally seeking at least $10 billion in damages over the unauthorized disclosure of tax information, had been voluntarily dismissed earlier in the month.

U.S. District Judge Kathleen Williams cited a motion from 35 former federal judges who argued that the settlement, which established a $1.776 billion compensation fund, raised questions about whether the court was provided complete information prior to dismissal. The motion stated that the agreement "raises profound questions about the parties' candor toward the court and manipulation of the judicial system." Williams set a June 12 deadline for responses on whether the dismissal should be vacated on grounds that the court was the victim of a fraud.

The underlying lawsuit stemmed from actions by Charles Littlejohn, a contractor who worked for the IRS through Booz Allen Hamilton. Littlejohn was sentenced in 2024 to five years in prison after pleading guilty to leaking confidential tax returns belonging to Trump and hundreds of other taxpayers to news organizations. The plaintiffs alleged the IRS failed to safeguard the data.

The settlement announced this month created the $1.776 billion fund, which the Justice Department described as compensation for Americans who believe they were improperly targeted by federal agencies during the prior administration. Acting Attorney General Todd Blanche stated that Trump, his sons, and the Trump Organization are ineligible to receive payments from the fund. Blanche also said Trump would have no role in selecting the five commissioners who administer the fund and that individuals convicted of violent crimes would be barred from eligibility. A separate nine-page agreement establishing the fund was signed by Stanley Woodward Jr., the third-ranking Justice Department official, and Frank Bisignano, who holds the position of IRS CEO.

A Justice Department spokesperson described the former judges' motion as without merit, stating that it is standard practice for plaintiffs to dismiss cases without detailing any settlement terms and that the agreement contains no impropriety. Democrats in Congress have characterized the fund as a mechanism to direct resources to political allies. A federal judge in the Eastern District of Virginia has issued a temporary hold on further implementation or disbursements pending additional litigation.

Republicans in Congress raised separate concerns. The settlement was announced while House and Senate leaders were negotiating a spending measure that included funding for Immigration and Customs Enforcement and Customs and Border Protection. Several members said they first learned of the agreement through public reports rather than internal briefings, contributing to the Senate's inability to pass the measure before recess.

In a footnote to her order, Williams questioned whether one provision of the settlement—shielding Trump, his family, and the Trump Organization from future audits of previously filed returns—was sufficiently related to the original claims under Justice Department settlement guidelines. Williams has not issued rulings on the merits of the underlying allegations.

The motion filed by the former judges was supported by the Democracy Defenders Fund, a nonprofit co-founded by attorney Norm Eisen, who served as co-counsel for House Democrats during Trump's 2020 impeachment proceedings. The administration has maintained that the settlement complies with applicable law. The fund's continuation remains subject to ongoing judicial review.