Justice Department lawyers were urged to fight President Trump’s $10 billion lawsuit against the IRS — and were handed a roadmap to do it — before instead striking a settlement that funneled $1.776 billion into a fund earmarked for the president’s political allies, according to a leak that has rattled Washington.
The disclosure, first reported on May 19, 2026, exposes the inner workings of one of the most extraordinary legal arrangements in modern presidential history: a sitting president suing an agency he oversees, then walking away with a taxpayer-funded payout pot for his supporters after the department charged with defending the government simply declined to show up in court.
IRS lawyers had prepared a detailed 25-page memo cataloguing what they viewed as fatal weaknesses in Trump’s suit, according to a new report citing two people familiar with the document. The memo, delivered to Treasury officials in April 2026, urged the DOJ to move to dismiss the case outright. Whether the document ever reached its intended recipients at the Justice Department remains unclear.
The Memo the DOJ May Never Have Read
The IRS attorneys flagged what they argued were straightforward defenses. Among them: that Trump filed his suit outside the two-year statutory window for actions against the IRS over unauthorized tax disclosures. The memo also recommended the DOJ contest whether the IRS could be held liable at all for the leak of Trump’s tax returns during his first term.
Those returns were funneled to journalists by Charles Littlejohn, an IRS contractor working at the time for the consulting firm Booz Allen Hamilton. Littlejohn pleaded guilty and was sentenced to five years in prison in 2024.
The IRS lawyers followed standard procedure in drafting their analysis. DOJ lawyers, by contrast, did not — uncertain, according to insiders, whether they were even permitted to oppose a lawsuit brought by the man who heads the executive branch. Trump had issued an order directing government attorneys to follow his interpretation of the law.
So no defense was mounted. No DOJ lawyer appeared in court to dispute the president’s claims. Instead, after a judge openly questioned the basic legality of a sitting president suing his own IRS, the department — now led by acting Attorney General Todd Blanche, Trump’s former personal lawyer — cut a deal.
Inside the $1.776 Billion ‘Anti-Weaponization Fund’
The settlement created a $1.776 billion “Anti-Weaponization Fund” in exchange for Trump dropping his suit. The pot is pitched as compensation for people who claim they were wrongly targeted by the Justice Department under the Biden administration.
“The machinery of government should never be weaponized 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,” Blanche said in announcing the fund.
The structure has alarmed critics. Blanche will appoint a five-member commission to control disbursements, and Trump can remove any member without cause. The identities of recipients — and the amounts they receive — will remain hidden from the public.
The eligible pool could include the roughly 1,600 people charged in connection with the Jan. 6, 2021, attack on the Capitol, among them violent offenders who assaulted Capitol Hill police. Pressed at a Capitol Hill hearing on Tuesday, Blanche declined to rule out payments to violent Jan. 6 offenders or to Trump’s political allies and donors.
A Pattern of Pressure on Department Lawyers
The disclosure lands amid mounting questions about how career attorneys at the Justice Department are being directed to handle cases that touch the president’s personal and political interests. The DOJ declined to say whether it ever received the IRS memo, or to explain why it chose to settle rather than fight. The IRS and Treasury did not immediately respond to requests for comment.
The episode echoes accusations leveled at Emil Bove, the acting deputy attorney general and another former personal lawyer to Trump. Bove was recently nominated to a lifetime seat on the U.S. Court of Appeals for the Third Circuit. According to an April 2026 complaint by Erez Reuveni — a Justice Department lawyer dismissed that same month — Bove instructed colleagues they “would need to consider telling the courts ‘f*** you'” if judges interfered with the administration’s deportation plans under the Alien Enemies Act of 1798.
On July 11, 2025, Senate Democrats led by Dick Durbin of Illinois, the ranking member on the Senate Judiciary Committee, released text messages and emails they said showed the department had misled a federal court and disregarded a court order — including in the case of Kilmar Abrego Garcia, who was wrongfully deported to El Salvador despite a court protection order.
The new IRS revelations are likely to intensify accusations that the settlement amounts to a corrupt giveaway of taxpayer money to the president’s allies — a charge made more difficult to rebut by the secrecy baked into the fund itself, and by the apparent existence of a legal defense the department chose never to mount.