MW The 'stunning' end to Trump's case against the IRS raises tax-law questions that will be analyzed for years
By Victor Reklaitis and Andrew Keshner
$1.776 billion fund and audit ban raise many new questions for Trump and the IRS
The settlement deal in President Donald Trump's case raises new questions for him and the IRS.
Earlier this week, the Justice Department settled President Donald Trump's case over his leaked tax returns by establishing a $1.776 billion "anti-weaponization fund" and forbidding the IRS from pressing audits against Trump, his relatives and related businesses.
It was supposed to be the end of a case that raised eyebrows about conflicts of interest between Trump's personal dealings and his role as commander-in-chief.
Instead, it's the beginning of new questions for Trump and the IRS.
"This is the kind of agreement that will likely be analyzed and discussed for years within the tax, administrative law and constitutional law communities," said Carolyn Schenck, an attorney with Caplin & Drysdale and former senior IRS official.
"I suspect the broader implications of this settlement - particularly as they relate to executive authority and the future operation of tax administration - will remain part of the legal and policy conversation for a very long time," Schenck said.
Under the deal, the United States is "forever barred and precluded" from a range of actions including audits against Trump, the settlement paperwork showed. This applies to "matters currently pending or that could be pending (including tax returns filed before the effective date)."
Trump's lawsuit related to the tax returns that an IRS contractor illegally leaked to news outlets several years ago. Charles Littlejohn pleaded guilty in 2023 to unauthorized disclosure of tax returns and return information. Littlejohn, 41, is due to be released from prison next year, records show.
Littlejohn leaked tax returns of other high-profile individuals. Citadel CEO Ken Griffin sued the IRS over the unlawful disclosure of his returns. The case ended with the IRS formally apologizing to Griffin and pledging to improve data security.
There's something different happening here.
The addendum that ends audits of Trump, his business and its affiliates and prevents future government claims is another example of the Trump administration taking an action that benefits the financial position of the president, whose net worth is estimated to be $6.5 billion.
Other examples include Trump amassing wealth through cryptocurrencies while his administration boosts the crypto industry, or holding stocks in companies that are benefiting from the administration's moves. Presidents are exempt from conflict-of-interest rules that prohibit federal officials from having a role in government matters in which they have a financial stake, but Trump's predecessors have relied on blind trusts, divestments or investments in diversified mutual funds and Treasury bills to limit ethical concerns.
The cost to Trump of losing one audit battle had been estimated to be more than $100 million.
Citizens for Responsibility and Ethics in Washington, a left-leaning watchdog group, described the addendum that ends audits as "yet another unconstitutional emolument," referring to how presidents are banned from getting additional compensation from the federal government. Before the addendum was revealed, Trump's Department of Justice earlier this week had emphasized that the settlement agreement ending Trump's $10 billion lawsuit against the Internal Revenue Service over the leak of his tax returns would involve "no monetary payment or damages of any kind" to him.
Related: Trump administration backs nuclear fusion - as a company tied to Trump invests in it
It's against the law for the president or the president's employees to stop an audit or some other investigation of a taxpayer, but the attorney general is allowed to do so, and Acting Attorney General Todd Blanche has signed the addendum.
There still are concerns that White House officials were involved in settlement negotiations, said Brandon DeBot, policy director of New York University's Tax Law Center, in a statement. DeBot also said the Department of Justice doesn't have authority to offer what are "extraordinary protections," and the IRS "would need to act to make the release of claims effective, which could raise additional questions about whether there has been unlawful political interference in the audit process."
"The settlement and general release of claims is a breathtaking abuse of the tax and legal system," DeBot added.
A Justice Department spokesperson said the parties waived the chance to fight over a range of issues, which is a typical move in settlements. The pact applies only to existing audits, not any future ones, the spokesperson added. The IRS and Treasury Department did not respond to requests for comment.
'Kind of a stunning moment'
Natasha Sarin, a professor at Yale University's law school and a co-founder of the Budget Lab at Yale, also offered criticism of the overall settlement, as well as of the addendum that ends audits, which she described as unprecedented.
"It's kind of a stunning moment in our nation's history, and one that I worry is quite problematic from the perspective of our democracy and its norms," said Sarin, who worked as a Treasury Department attorney during the Biden administration.
Dave Kautter, a tax attorney who served in the first Trump administration as an acting IRS commissioner and assistant Treasury secretary for tax policy, said he wasn't outraged by the settlement agreement and its addendum. "I will say in my experience it is a unique arrangement, and it's just something I've never seen before," Kautter told MarketWatch.
It could be difficult to mount a legal challenge to the settlement and its addendum, according to Kautter, who likened the arrangement to a contract between the president and the federal government. "Generally in a contract, the parties to the contract are the only parties that can challenge the terms of the contract," he said.
Other legal experts also said a challenge could be difficult. NYU's Tax Law Center has offered an analysis that explains how a party can only challenge a government action that loses tax revenue if they can show they were personally harmed in a way other taxpayers weren't.
The "anti-weaponization fund" appears to have wide latitude and could offer a way for rioters who were pardoned by Trump for their actions on Jan. 6, 2021, to receive payouts. So far, two police officers who helped defend the U.S. Capitol on that day have sued to stop payouts from the $1.776 billion fund established by the settlement.
A smaller IRS
It may be too soon to determine if the Trump deal has long-term impacts on white-collar enforcement for the IRS, said Schenck.
Attorneys trying to guess the IRS's next move usually watch for big-picture indicators, she said. That includes "how agencies allocate resources, the types of cases emphasized, how aggressively certain theories are pursued, and how the government frames its enforcement mission publicly."
But the signals so far suggest an IRS that's scaling back high-end enforcement just as it was starting to rev it up. The agency's head count was 27% smaller in December 2025 compared to January 2025, according to a report from Erin Collins, the IRS national taxpayer advocate.
Democrats say the tax agency is being gutted after a Biden-era hiring surge to improve customer service and collect more money from wealthy households. The cuts are right-sizing the ranks, as many Republicans see it. For instance, Treasury Secretary Scott Bessent recently said there was "quite a bit of bloat during the Biden years."
Either way, the impact of a thinner enforcement staff is getting noticed. Reports from the Treasury inspector general for tax administration show examples.
For instance, taxpayers with offshore bank accounts owe the IRS and have reporting rules to follow. Nonfiling has been an issue for years and now the division reviewing taxes for large businesses and international taxpayers has lost almost 750 revenue agents, the watchdog noted in a report last month. It's likely that will impact the fight against noncompliance looking ahead, the report said.
In a March report, the Treasury watchdog said the IRS was rethinking its audit coverage goals for large partnerships in the wake of a smaller staff.
There's also been a carousel of leadership changes before Frank Bisignano, commissioner of the Social Security Administration, was tapped as CEO for the IRS. Bisignano was one of the federal officials signing the court settlement that created the anti-weaponization fund.
At a Senate hearing last month, Bisignano said he was committed to tax collection and would be able to handle the workload with fewer employees. "What we've done is bring in a ton of technology," Bisignano said.
Sen. Peter Welch, a Democrat from Vermont, said staff cuts have damaged the IRS's ability to collect money it's owed. "We need you to bring in a ton of money from people who owe it. Not a ton of technology."
-Victor Reklaitis -Andrew Keshner
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
May 20, 2026 18:24 ET (22:24 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments