Judge reopens Trump’s deal to end $US10 billion tax fight
Alan Feuer, Andrew Duehren, Glenn Thrush, Ben Protess and Maggie Haberman
Time was running out.
President Donald Trump had sued the US Internal Revenue Service (IRS) for $US10 billion ($13.9 billion), and a federal judge was pressing the Justice Department to explain how it could muster an independent defence of the agency against the man who ultimately controlled it.
Behind the scenes, the job of addressing the vexing problem of how to settle the lawsuit fell to a tight-knit group of lawyers, all of whom had allegiance to Trump.
On one side of the talks was a Justice Department run by Todd Blanche, the acting attorney-general who once served as Trump’s criminal defence lawyer.
On the other was the president’s private lawyers, among them Boris Epshteyn, who was a former client of Blanche’s. Epshteyn played a significant role in advancing the deal to end the suit, co-ordinating and holding discussions with all sides involved: Trump, the president’s personal lawyers, and Justice Department officials, according to people familiar with the matter.
The discussions were so closely held that some senior White House officials told others that they were blindsided, learning of them only once the agreement was nearly complete.
In the end, the lawyers’ solution did not give Trump what his lawsuit had demanded: simply moving funds from the Treasury Department into his own pocket. But the agreement that was reached was still a big victory for the president and his allies: It set up a $US1.8 billion fund to pay people deemed to have been harmed by so-called government weaponisation – possibly including hundreds of rioters charged with storming the Capitol on January 6, 2021 – and released Trump and his businesses from potentially costly IRS audits.
This article is based on interviews with more than a dozen people who discussed internal deliberations about the IRS suit on the condition of anonymity.
The White House did not respond to requests for comment. Epshteyn declined to comment.
A spokesperson for the Justice Department said that anyone who believed they were a victim of government weaponisation could apply for money from the fund, claiming that many people had been victimised by the Biden administration.
Much is still unknown about how the arrangement came about. But the plan drafted by a group of Trump allies posed conflicts of interest that are remarkable, even for an administration riddled with them.
As questions have mounted about the nature of the deal, the federal judge who oversaw the lawsuit, Kathleen Williams, took the extraordinary step on Friday of revisiting the case, asking whether the parties had deceived her.
When the details of the agreement were first revealed two weeks ago, Democrats and former government officials lodged accusations of corruption and self-dealing, and even some Republicans reacted with scornful disbelief. Some GOP senators were so angry that they abandoned plans to approve a measure to finance the administration’s immigration crackdown.
Within days of the agreement becoming public, and before the judge raised questions about it, senior administration officials began preparing to eliminate the fund amid the intense blowback. Those discussions were reported earlier by The Wall Street Journal.
But while the agreement appeared to have emerged abruptly, it fused two ideas that had been kicking around in Trump’s circle for years: a desire by him and his family to avoid extensive tax audits, and a longing by his allies to obtain financial restitution for legal wrongs they claimed to have suffered during the Biden administration.
In its broad strokes, the plan was in keeping with other manoeuvres by Trump. As president, he has often used the levers of power at his command to serve himself at a moment when he still maintains control over the government, including having the United States accept a $US400 million luxury jet from Qatar that he could fly as president and intended to take later. But in establishing a fund that would involve billions in taxpayer money, the deal stands alone.
Trump has said little about how the agreement came together or who played a role in resolving the suit, which faulted the IRS for the leak of his tax information to The New York Times during his first term. The closest he has come in recent days was a social media post in which he declared that he had given up “a lot of money” by “allowing” the fund to be created.
“I could have settled my case, including the illegal release of my Tax Returns and the equally illegal BREAK IN of Mar-a-Lago, for an absolute fortune,” Trump wrote. “Instead, I am helping others, who were so badly abused by an evil, corrupt, and weaponized Biden Administration, receive, at long last, JUSTICE!”
Trump creates a legal dilemma
Trump’s lawsuit against the IRS landed at the Justice Department with a thud in late January.
By the early northern spring, lawyers there were already wrestling with the legal dilemma the president’s pleading had created.
After all, to defend the IRS against Trump, the department would have to fight a sitting president who was technically in charge of the agency and who demanded total loyalty from his subordinates.
Department lawyers were not the only ones who had identified this problem. Williams, an Obama appointee who sits in Miami, had also homed in on it, wondering whether there was actually a conflict to adjudicate, given that Trump was effectively on both sides of the suit.
It left Blanche and his team in a tight spot: They did not want the Justice Department to go into court and fight the suit but also did not want to settle it by paying Trump directly.
The suit contended that the IRS had not done enough to prevent a contractor for the agency, Charles Littlejohn, from leaking to the news media reams of Trump’s tax information, along with the returns of hundreds of other very wealthy Americans during the president’s first term in office. Even though Littlejohn was prosecuted by the Biden administration and sentenced to five years in prison, Trump argued that he was owed $US10 billion by the IRS.
At first, there was a hope inside the Justice Department that lawyers would respond to the suit with a procedural manoeuvre to sidestep or delay the case. One option department lawyers quietly discussed was to ask Williams to put the suit on hold until after Trump left office.
But that never happened. And it left Blanche and his team in a tight spot: They did not want the Justice Department to go into court and fight the suit, as it normally would, but also did not want to settle it by paying Trump directly, said people familiar with their thinking.
Ending the case by funnelling taxpayer money straight to the president struck them as politically untenable. Some department officials even worried that doing so could, under a future Democratic administration, expose them to a criminal investigation of conspiracy to defraud the government.
Inside the IRS, the suit was treated more or less as business as usual, even though the plaintiff was the president. Lawyers at the agency followed normal procedures for responding to claims and prepared a 25-page memo for the Justice Department, outlining their views of the case.
In the memo, the IRS recommended that the department move to dismiss the suit, pointing to two main problems: It had been filed too late and had wrongly blamed the IRS for the actions of Littlejohn.
IRS officials sent the memo to colleagues in the Treasury Department, but it remains unclear whether those Treasury officials ever passed it on to the Justice Department. In fact, no Trump administration lawyer responded to the president’s suit at all – or even made an appearance on the court docket.
What finally pushed Williams into action was a request on April 17 from one of Trump’s private lawyers, Alejandro Brito – not from a government lawyer – to delay all proceedings in the case for three months. A week later, the judge effectively ordered the Justice Department to tell her whether it intended to defend the IRS, giving the department until May 20 to respond.
The pressure of that deadline set off a scramble, as lawyers on both sides of the suit started looking for a way to resolve the case and avoid further scrutiny from the judge.
Central in the negotiations was Trent McCotter, Blanche’s senior deputy and a rising star in the department, according to people familiar with the talks. He served as one of the administration’s chief interlocutors with personal lawyers in Trump’s orbit, including Daniel Epstein, who often works with Epshteyn and once served as a special assistant to Trump during his first term in the White House.
Claims combined
Ultimately, the discussions about settling the IRS suit were combined with talks about ending two other unusual claims previously filed by Epstein, who works for America First Legal, the outside group co-founded in 2021 by Stephen Miller, Trump’s powerful White House adviser.
Those claims demanded that the Justice Department pay the president about $US230 million in compensation for the investigation into possible ties between Russia and his 2016 campaign, as well as the well-publicised FBI search of Trump’s Mar-a-Lago estate in Palm Beach, Florida, for classified documents in 2022.
The idea that emerged was a global settlement of all the claims, which would push Trump away from the politically damaging effort to take money for himself. Instead, it would create a fund for his allies and supporters – including the pardoned January 6 rioters – who believed they had been wronged in the courts by previous Democratic administrations.
McCotter proposed a patriotic marketing gimmick, setting the fund’s amount at the symbolic sum of $US1.776 billion, according to people familiar with the idea.
Still, it was not entirely a new idea.
In mid-2025, Ed Martin, a longtime advocate for the January 6 rioters who was leading the Justice Department’s pardon office and a special working group intended to counteract government weaponisation, had proposed a plan to address what he believed was mistreatment of Trump supporters by the legal system, said people familiar with the matter. Martin envisioned a “truth commission” of sorts that would assess accusations of misconduct by the Justice Department and possibly make payouts to worthy claimants.
He even floated the idea to senior administration officials like Health Secretary Robert F. Kennedy Jr, who has long complained that Americans were harmed by the government’s response to COVID-19, according to a person with direct knowledge of the exchange.
Blanche, who has often clashed with Martin, rejected the idea, the person said. But with the May 20 deadline quickly approaching, the Justice Department, at McCotter’s urging, came up with its own plan to redress the supposed past wrongs suffered by the president’s supporters.
Deal modelled on Obama-era case
The plan was closely based on an Obama-era case called Keepseagle v Vilsack, a class-action lawsuit that gave hundreds of millions of dollars to Native American farmers to settle accusations of government discrimination. McCotter took the idea to the Office of Legal Counsel, which advises Justice Department leaders on the law. The office, run by T. Elliot Gaiser, a former clerk for Justice Samuel Alito, blessed the proposal, agreeing that Keepseagle could serve as a model.
When the plan was made public, it faced an avalanche of criticism. The Treasury Department’s top lawyer, a Trump appointee, resigned.
Among the loudest critics were former Justice Department lawyers who had worked on the Keepseagle case, who pointed out that the Keepseagle settlement was overseen by a federal judge after years of litigation and analysis of the claims and evidence.
The resolution to Trump’s suit against the IRS, by contrast, was reached in private by lawyers loyal to the president and without any judicial oversight.
Appearing on CNN in recent days, Blanche was asked directly who came up with the terms of the agreement and said that there had been negotiations between Trump’s “outside counsel” and the Justice Department.
But he quickly added, “Not me.”
Broad immunity from audits
There was more.
Even as the two sides were hashing out the contours of the fund, there were also discussions about a second agreement that would end the lawsuit: a plan to give the Trump family and their businesses broad protection from IRS investigations of tax returns they had already filed.
The tax immunity agreement was more like a rescue operation than a formal legal settlement. It called for the IRS to absolve Trump and his businesses of all audits they were now facing – including a years-long battle with the tax agency that could have cost the president more than $US100 million.
That fight stemmed partly from a refund that Trump had claimed – and collected – starting in about 2010. He justified the refund by declaring huge business losses, including on his tower in Chicago.
Early in Trump’s first term in the White House, the matter was put on hold, but it came back to life before he left office.
More recently, the company had entered settlement talks with the agency, laying the groundwork for a potential resolution, said a person with knowledge of the matter.
Now, it seemed, the audit would vanish.
Acting as a cheerleader for the overall plan, including the tax deal, was Epshteyn, Trump’s top outside legal adviser, who has been close to the president for about a decade, both when he was in and out of office.
Epshteyn played a significant role in moving the proposals forward, said multiple people familiar with the matter, discussing the issue with Trump and circulating drafts of the tax agreement to Trump advisers.
While the origins of the tax manoeuvre remain somewhat obscure, the Justice Department began to assess the proposal about a week before Williams’ May 20 deadline, said people familiar with the matter. One of the questions raised was whether giving the Trumps protection against IRS scrutiny would run afoul of a law barring the tax agency from dropping audits at the direction of the president or his aides.
The tax proposal did not appear in the initial document that declared the lawsuit resolved and described the details of the compensation fund. That document was signed by the Justice Department’s No. 3 official, Stanley Woodward Jr, who had worked with Blanche on Trump’s defence team and represented several of the president’s close aides in various investigations.
In a curious twist, the tax addendum was posted, without fanfare, on the Justice Department’s website one day after the terms of the main agreement were released. It was a murky piece of writing, full of long sentences stuffed with subordinate clauses and the Trumpian use of words in capital letters. Only Blanche, and no one from the IRS, signed it.
The details of the fund were also somewhat inscrutable. Although the Justice Department had explicitly stated that the Trump Organisation and the Trump family were ineligible for the fund, one confusing clause appeared to open the door for them to file claims.
Indeed, officials at the Trump Organisation briefly discussed whether to do so, according to people with knowledge of the matter. No decision was made. On Friday, a federal judge in Virginia temporarily froze the fund.
