Lawyers at the Internal Revenue Service sought to contest President Trump’s lawsuit against the agency, recommending several potential defenses in a case that the Justice Department nevertheless decided to resolve by creating an extraordinary $1.8 billion fund that could soon be used to pay Mr. Trump’s political allies.
I.R.S. officials prepared a 25-page memorandum outlining what they saw as flaws in Mr. Trump’s suit and advising the Justice Department to move to dismiss it, according to two people familiar with the memo. That memo was provided to Treasury officials in April, and it is unclear if they passed it along to its intended recipients at the Justice Department, according to the people, who spoke anonymously to discuss internal government deliberations.
No lawyers from the Justice Department ever appeared in court to respond to the suit or disputed any of Mr. Trump’s claims, which demanded at least $10 billion from the I.R.S. for not doing enough to prevent the leak of his tax information. The Justice Department instead made a highly unusual deal in the case. In exchange for Mr. Trump’s dropping the suit, the Trump administration created the $1.776 billion “anti-weaponization” fund for people who say they were wrongly targeted by the federal government.
The existence of the internal memo, which has not been previously reported, shows that the Trump administration disregarded readily available defenses to a lawsuit filed by the president against an agency he controls. While the Justice Department has said that Mr. Trump will not receive money from the new fund, critics have slammed the arrangement as a corrupt attempt at paying Mr. Trump’s political supporters, including, potentially, those who were convicted and later pardoned for storming the Capitol on Jan. 6, 2021.
The Treasury Department and the I.R.S. did not respond to requests for comment. The Justice Department did not respond to questions about why it chose to settle the case.
Todd Blanche, the acting attorney general, will be able to appoint five people to a commission that will oversee the disbursement of the money, though Mr. Trump can fire any of those people at will. The Justice Department has so far offered few other details about who will be eligible for payments from the fund.
Among Republicans on Capitol Hill and within the Trump administration, there has been concern about the fund. Brian Morrissey, a Trump appointee and the general counsel at the Treasury Department, resigned on Monday soon after its creation.
On Tuesday, the Justice Department expanded its agreement with Mr. Trump, promising that the I.R.S. would drop any audits of him, his family or related entities. I.R.S. procedures call for an annual audit of the president’s tax returns, but is unclear if any of the Trumps are otherwise currently subject to an I.R.S. exam.
In 2024, The New York Times reported that a loss in an I.R.S. audit could cost Mr. Trump more than $100 million.
The I.R.S. memo was prepared by career civil servants in the agency’s office of chief counsel, who followed the agency’s normal procedures for responding to a lawsuit, the people said. While the Justice Department represents the I.R.S. in federal court, lawyers at the agency routinely provide their views on tax law.
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In the memo, the I.R.S. lawyers laid out several issues with Mr. Trump’s suit that they thought the federal government should point out in court.
One was that Mr. Trump might have filed his suit too late. Federal law allows people to sue the I.R.S. if their tax information is released without authorization, but they must do so within two years. In his suit, Mr. Trump said he did not become aware that his tax information had been leaked from the I.R.S. until he received an official notice from the agency on Jan. 29, 2024, exactly two years before he filed the complaint this January.
But the I.R.S. memo calls that claim into question. It refers to the fact that Alina Habba, a personal lawyer for Mr. Trump, appeared in court when Charles Littlejohn, a former I.R.S. contractor, pleaded guilty to leaking the tax information of Mr. Trump and thousands of wealthy Americans, according to the people familiar with it. That was in October 2023, more than two years before Mr. Trump filed his suit.
Another recommendation in the memo, according to the people with knowledge of it, was for the Justice Department to challenge whether the I.R.S. could be held liable for the conduct of Mr. Littlejohn.
Mr. Littlejohn was employed by the consulting firm Booz Allen Hamilton when he leaked the tax information to The Times and ProPublica in 2019 and 2020. In response to other suits stemming from the same leaks, lawyers for the Justice Department took the position that people could not blame the I.R.S. for the behavior of Mr. Littlejohn because he was a contractor.
Those arguments may or may not have succeeded in court. The I.R.S. did settle a case brought by the hedge fund billionaire Ken Griffin over the leak of his tax information. In that instance, the government did not make any payments but publicly apologized to Mr. Griffin.
Mr. Trump, who sued the I.R.S. alongside two of his sons and his family businesses, will also receive an apology as part of the settlement with the Justice Department.
While I.R.S. lawyers followed the typical process for responding to a lawsuit, officials at the Justice Department did not. Lawyers at the Justice Department struggled with whether they could oppose a lawsuit filed by Mr. Trump, The Times previously reported, given that he leads the executive branch and signed an order binding government lawyers to his view of the law.
When the Justice Department neared the mid-April deadline for responding to Mr. Trump’s suit in court, Mr. Trump’s personal lawyers, rather than the government, asked the judge to extend the deadline. Lawyers for Mr. Trump, in that filing, said they were in talks with unnamed officials at the Justice Department.
That prompted the judge overseeing the case, Kathleen M. Williams of the Southern District of Florida, to question whether Mr. Trump could legally sue an agency that he controls as president. She ordered Mr. Trump’s personal lawyers and the Justice Department to write briefs discussing whether they were actually in opposition to each other — or if they were, in fact, on the same side of the suit. Such collusion would require the judge to dismiss it.
The parties had until Wednesday to write those briefs. But Mr. Trump withdrew his suit on Monday, the same day the Justice Department rolled out the anti-weaponization fund. Judge Williams closed the case.
Frank Bisignano, who is working in the newly created role of chief executive of the I.R.S., signed the agreement with the Justice Department to create the fund. Mr. Bisignano was not confirmed by the Senate to that I.R.S. job, and he is splitting his duties there with his job as the commissioner of the Social Security Administration.
Andrew Duehren covers tax policy for The Times from Washington.
The post The I.R.S. Thought It Could Fight Trump’s Lawsuit, but It Struck a Deal Anyway appeared first on New York Times.
