United States President Donald Trump has withdrawn his $10bn lawsuit against the Internal Revenue Service (IRS) stemming from a leak of his tax returns and said his administration will create a $1.77bn anti-weaponisation fund that would compensate some of Trump’s political allies.

The court filing, released on Monday in Florida, did not disclose the terms of the deal, including whether either party settled.

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However, the Department of Justice (DOJ) on Monday announced the establishment of a $1.77bn fund called the Anti-Weaponisation Fund that would “provide a systematic process to hear and redress claims of others who suffered weaponisation and lawfare”.

The DOJ said in its press release that it was part of the settlement agreement.

ABC News first reported last week that the president was prepared to drop the lawsuit as part of a deal that would create the fund to pay Trump allies who were perceived as wrongly investigated and prosecuted.

Trump, his adult sons Donald Trump Jr and Eric Trump, and the Trump Organization sued the IRS in January, arguing the agency should have done more to prevent a former contractor from disclosing their tax returns to media outlets during the president’s first term.

The case arose from former IRS contractor Charles Littlejohn’s leak of Trump’s tax returns to media outlets, including the New York Times and ProPublica, in 2019 and 2020.

Those returns showed that Trump paid little or no income taxes in many years, the Times reported in 2020.

Prosecutors charged Littlejohn in 2023 with leaking tax records of Trump and thousands of other wealthy Americans to the media, saying he was motivated by a political agenda. Littlejohn later pleaded guilty to improper disclosures, and a judge sentenced him to five years in prison.

Trump filed the lawsuit personally, not in his official capacity as president.

Political pushback

While the court filing did not mention the terms of any potential deal, news that the president would create a fund to protect his political allies sparked backlash.

Representative Jamie Raskin, a Democrat from Maryland, called the idea “unconstitutional”.

“This, of course, is a political grievance fund that Donald Trump can use to pay off his friends,” Raskin, the top Democrat on the House Judiciary Committee, said in an interview on Sunday with the ABC News programme This Week.

“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 prove 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 said.

California Governor Gavin Newsom also criticised the president amid reports of the deal.

“Donald Trump wants to settle his joke lawsuit against his own IRS department to hand out $1.7 BILLION of OUR TAX DOLLARS to Jan. 6th insurrectionists and his cronies,” Newsom said in a post on X.

“It is an outrage that the American taxpayers are having to pay for this and that we have a president who is exercising such open corruption in front of everyone and expecting us to go along with it,” Representative Pramila Jayapal, a Democrat from Washington state, told the progressive MeidasTouch network.

Despite the criticisms, it is not clear who would specifically benefit from the funds.

Trump has long claimed that the DOJ under his predecessor, President Joe Biden, a Democrat, was weaponised against him, pointing to the criminal charges where he faced allegations that he conspired to overturn the results of the 2020 presidential election, which Trump lost by more than seven million votes, and that he retained classified documents at his Mar-a-Lago estate.

Merrick Garland, the attorney general during the Biden administration, denied allegations of politicisation. The Justice Department also investigated prominent Democrats, including Biden’s son Hunter Biden and former US Senator Bob Menendez, a Democrat from New Jersey.

“The machinery of government should never be weaponised 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,” said Acting Attorney General Todd Blanche said in a release.

However, the Trump administration has actively pursued cases against perceived political enemies, including former FBI director James Comey and former Federal Reserve Chairman Jerome Powell, Fed Governor Lisa Cook, New York Attorney General Letitia James, Arizona Senator Mark Kelly, and California Senator Adam Schiff. 

The DOJ said that there is legal precedent for the fund, pointing to a programme called “Keepseagle” under the administration of former US President Barack Obama, a Democrat. That created a fund to address allegations of racism against the federal government.

The White House referred Al Jazeera to the DOJ for a request for comment. The DOJ did not respond.

The government watchdog group Citizens for Responsibility and Ethics (CREW) announced on X that it would be investigating how the funds would be used.

“While Americans are struggling with an affordability crisis, President Trump plans to use nearly $1.8bn in taxpayer money to pay off his friends and allies—including potentially the violent insurrectionists who attacked the Capitol on January 6th,” CREW’s president, Donald K Sherman, said in a statement provided to Al Jazeera.

“By settling his absurd $10bn lawsuit against his own administration, Trump and the Justice Department just engaged in the most brazen act of self-dealing in the history of the presidency, and did so quickly in order to avoid the scrutiny of the judicial process, while quite likely violating the Constitution’s Domestic Emoluments Clause in the process. This is one of the single most corrupt acts in American history.”

A long time coming

Lawyers for the president asked a federal judge in April to pause the case for 90 days while the two sides worked to reach a settlement or resolution.

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

When asked in February how he would handle any potential damages from the case, Trump said, “I think what we’ll do is do something for charity.”

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

The litigation against the IRS raised novel legal questions, including conflicts of interest, about whether a president can sue his own government. It is not clear if the judge will accept Trump’s withdrawal of the case.

Under the US Constitution, federal courts may only hear genuine disputes between litigants with opposing stakes in the outcome.

US District Court Judge Kathleen Williams in Miami, who oversees Trump’s lawsuit, wrote last month that it was unclear whether the parties to the lawsuit were “truly antagonistic to each other”.

Williams had set a court hearing for May 27 to hear arguments on whether she should dismiss the case on those grounds.