Washington: US President Donald Trump has moved to withdraw his $10 billion lawsuit against the Internal Revenue Service (IRS) over the alleged leak of his tax returns, as reports emerged that his administration was considering a compensation fund for some of his political allies.

Court filing confirms move to withdraw case

The development was disclosed in a filing submitted to a federal court in Florida, where the lawsuit was originally filed last year.

The filing did not refer to any terms of a possible settlement or agreement linked to the withdrawal.

According to ABC News, which first reported the matter last week, Trump was preparing to drop the lawsuit as part of an arrangement that could establish a $1.7 billion fund. The proposed fund would reportedly compensate individuals who claim they were wrongly investigated or prosecuted.

Political backlash over proposed fund

The reported plan to create a compensation fund triggered immediate criticism from Democratic lawmakers.

Representative Jamie Raskin, the top Democrat on the House Judiciary Committee, described the idea as unconstitutional during an interview on ABC’s “This Week” on Sunday.

“This, of course, is a political grievance fund that Donald Trump can use to pay off his friends,” Raskin said.

He further argued that individuals with legitimate claims should pursue legal remedies through the courts.

“If these people have a valid cause of action, they should bring it to the court like every other American does, and use the system of due process, and proving things by clear and convincing evidence, or a preponderance of evidence, go and prove it. But the idea that Donald Trump can just pass it out like a pardon is absurd,” he added.

Uncertainty over beneficiaries and political context

It remains unclear who would benefit from the proposed fund. However, its reported consideration comes in the context of Trump’s repeated claims that the Biden administration’s Justice Department was politically used against him.

He has pointed to criminal charges brought against him during the period between his first and second terms, including allegations related to efforts to overturn the 2020 election results and the retention of classified documents at his Mar-a-Lago residence in Florida. Several of his associates were also prosecuted, along with hundreds of supporters involved in the 6 January 2021 Capitol attack.

Former Attorney General Merrick Garland has consistently rejected allegations of political interference, stating that prosecutorial decisions were based on facts, evidence and the law. The Justice Department under his leadership also investigated President Joe Biden over classified documents and pursued separate cases involving Hunter Biden related to taxes and firearms.

Ongoing justice department actions and investigations

Despite those positions, Trump’s current Justice Department has pursued what has been described as a broader retribution-driven approach. It has brought charges against individuals considered political adversaries and launched a wide-ranging investigation into alleged coordination between law enforcement and intelligence officials aimed at undermining Trump’s political prospects and preventing him from returning to power.

No charges have yet been filed in that investigation, and it remains uncertain whether any will follow.

Background of the IRS tax return lawsuit

Trump filed the lawsuit earlier this year in a Florida federal court, alleging that the leak of his and the Trump Organisation’s confidential tax records caused reputational and financial damage. The complaint stated that the disclosures led to “public embarrassment, unfairly tarnished their business reputations, portrayed them in a false light, and negatively affected President Trump, and the other Plaintiffs’ public standing.”

His sons, Donald Trump Jr. and Eric Trump, are also listed as plaintiffs in the case.

Leak investigation and criminal conviction

In 2024, former IRS contractor Charles Edward Littlejohn of Washington, DC, who worked for Booz Allen Hamilton, a defence and national security technology firm, was sentenced to five years in prison. He pleaded guilty to leaking tax information related to Trump and others to two news organisations between 2018 and 2020.

The media outlets were not named in court documents, but the timing and description align with reporting by The New York Times on Trump’s tax returns and investigative work by ProPublica on wealthy Americans’ tax records. The New York Times reporting in 2020 revealed that Trump paid $750 in federal income tax during his first year in office and paid no income tax in some years due to significant reported losses.

Steps towards possible settlement

Signs of a potential resolution emerged earlier this year when Trump’s legal team asked a federal judge in April to pause proceedings for 90 days to allow settlement discussions.

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

Trump’s earlier remarks on damages

In February, when asked about possible damages from the case, Trump indicated that any payout might be directed towards charitable causes.

“I think what we’ll do is do something for charity,” he said at the time.

“We could make it a substantial amount,” he added. “Nobody would care because it’s going to go to numerous very good charities.”

Legal and ethical concerns raised

More recently, a group of lawyers wrote to the court raising questions about whether the Justice Department is sufficiently insulated from presidential influence in handling the case.

In addition, several ethics watchdog organisations have submitted amicus briefs, expressing concerns over the legitimacy and implications of the lawsuit initiated by the president.

Agency inputs