An Obama-appointed federal judge in Florida reopened President Donald Trump's $10 billion IRS lawsuit on Friday, reviving a case the president had already walked away from and putting the administration's $1.776 billion anti-weaponization compensation fund in serious doubt.
Judge Kathleen Williams had already closed the case after Trump voluntarily dismissed it. She reversed herself, citing what she called "grievous allegations" that the settlement creating the fund was "premised on deception." The reversal came after 35 former federal judges asked her to take another look. That group is backed by Democracy Defenders Fund, a nonprofit co-founded by Norm Eisen, who represented House Democrats as co-counsel during Trump's first impeachment in 2020.
The former judges claim the settlement raises serious questions about "candor toward the court and manipulation of the judicial system." The filing also alleges the lawsuit was used to funnel $1.776 billion in taxpayer money to a presidential commission without any vote in Congress.
"The purported 'settlement' that was publicly disclosed after this court dismissed this matter raises profound questions about the parties' candor toward the court and manipulation of the judicial system, which threatens to undermine confidence in the administration of justice," their filing read.
Williams ordered Trump's lawyers to respond by June 12 to whether the case should be reopened because "the court was the victim of a fraud."
In 2024, Charles Littlejohn, a contractor who worked for the IRS through Booz Allen Hamilton, was sentenced to five years in prison for illegally leaking Trump's confidential tax returns to unfriendly news organizations. The leak also exposed data belonging to hundreds of other taxpayers. Trump, his sons, and the Trump Organization sued the IRS in January over the agency's failure to protect that information, seeking at least $10 billion in damages.
The case settled this month. The Justice Department said the resulting $1.776 billion fund would compensate Americans who believe they were improperly targeted by the federal government during the Biden years.
Acting Attorney General Todd Blanche, who signed the audit-protection portion of the settlement, has said that Trump, his sons, and the Trump Organization cannot receive money from the fund. He has also said Trump will have no hand in picking the five commissioners who run it, and that people convicted of violent crimes are ineligible.
A DOJ spokesperson called the judges' motion baseless.
"It is a routine move for plaintiffs to dismiss cases without referencing any settlement. This motion is frivolous, and there is nothing improper about this agreement," the spokesperson said.
Democrats called the fund a slush fund for Trump's allies, and a federal judge in the Eastern District of Virginia has already put a temporary hold on any further steps to set it up or pay out money while litigation moves forward.
Republicans on Capitol Hill had a different problem with it. The settlement's announcement blindsided GOP leaders mid-negotiation on a spending bill for Immigration and Customs Enforcement and Customs and Border Protection. Leadership couldn't hold the caucus together, and the Senate left for recess without passing it, a tangible legislative cost from a deal many members learned about through news coverage rather than from the White House.
Williams also took issue, in a footnote, with the part of the settlement protecting Trump, his family, and the Trump Organization from future IRS audits of returns already filed. She questioned whether that protection was sufficiently connected to the original claims to satisfy Justice Department rules on settlements.
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Blanche signed that piece alone. The separate nine-page agreement setting up the $1.776 billion fund was signed by Stanley Woodward Jr., the third-ranking official at DOJ, and Frank Bisignano, who holds the newly created CEO position at the IRS, a role that does not require Senate confirmation
Williams has not ruled on any of the underlying claims. What she has done is hand a win to a group founded by one of Trump's impeachment lawyers, who filed a motion with a judge appointed by Barack Obama and got exactly the result they were looking for.
The administration maintains the deal is legal and straightforward. Whether the fund survives long enough to reach the Americans it was built to help is still an open question.
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