Trump IRS Deal Creates a Federal Checks-and-Balances Stress Test

Creating a $1.8 billion taxpayer-funded compensation fund in exchange for President Donald Trump dropping his lawsuit against the IRS has government experts—including me—trying to make sense of what precedent this creates going forward.

First, can one move a lawsuit from somewhere to nowhere and have it still be a lawsuit?

The arrangement works like this: Trump’s lawsuit is dismissed and then, without the court involved, a compensation structure is set up for people allegedly mistreated by the Biden administration, funded by the Treasury Department and administered by a five-member commission appointed by Acting Attorney General Todd Blanche.

I’ll start with an important practical problem. A government compensation fund is supposed to be used to pay court judgments and formal legal settlements conducted in connection with litigation still active in court. If you dismiss the case first and then separately construct a payout, are you still settling a lawsuit?  Or are you instead constructing a broad financial arrangement operating solely at the discretion of the executive branch?

Second, what prevents this arrangement from happening routinely?

If a president can voluntarily pull a lawsuit out of court and then create a taxpayer-funded payout inside his own executive branch, what prevents him or a future president from doing that on the regular? Could governors avail themselves of such a gambit?  The courthouse is the typical venue for a settlement paid by a government fund. Congress has no role in how to disperse such a fund.

So with the court and Congress now removed from the equation, we are in a world where the executive branch can create a fund the size of its choosing and make payments from it within the scope of its choosing. 

In other words: no checks, no balances.

Once this structure exists as precedent, the financial incentives are clear and powerful, but limiting principle becomes difficult to find.  This feels like a constitutional no-fly zone.

Third, can a lawsuit’s remedy be disconnected from the alleged wrong that led to it?

There’s a historical fact that seems to have been forgotten in the news and commentary surrounding this lawsuit: The leak of Trump’s tax returns happened when he was president, not Joe Biden.

Between 2018 and 2020, a government contractor named Charles Littlejohn secretly accessed and released the tax data of thousands of wealthy Americans, including Trump, intentionally working to avoid detection. The Justice Department under Biden, with support from the Treasury Inspector General for Tax Administration, investigated and successfully prosecuted the case. Littlejohn’s punishment–a five-year prison sentence that he’s serving today–fit the underlying crime.

Does the $1.8 billion civil settlement fit the underlying civil wrong at the center of Trump’s lawsuit?  The terms are built around remedies for alleged “weaponization” by the Biden administration. But the harm at the center of it all occurred on Trump’s watch.

In law, the remedy is supposed to fit the wrong. When it doesn’t, and the payout drifts far beyond the original infraction and into political territory, something has gone sideways. And when that payout comes from taxpayer money, with no court and no Congress meaningfully in the loop, the public has every right to have more questions answered before the settlement proceeds and the payouts begin.

Governments are certainly responsible for providing a remedy when their action, if reckless or negligent, causes harm to a member of the public. But the remedy should logically connect to the underlying harm and the facts surrounding it.  If a lobbyist slips and falls in a federal building, the settlement pays for the medical bills and may be the lost wages. It shouldn’t evolve into a payout to the industries they lobby for.

For civil litigation to remain civil and not morph into an engine for politics, the harm must define the remedy. 

Will this settlement build public trust in our justice system or diminish it? By moving from one venue to no venue at all, Article III oversight—which provides independent judicial oversight of the other branches—disappears.

In this non-venue, the power of Congress’ legislative authority under Article I, and its power of the purse, also disappears if an executive branch judgment fund is an acceptable financing mechanism.  All that remains are the Article II executive branch agencies, exercising spending authorities all by themselves.

Maybe there are legal answers to all of these questions. But before this structure becomes normalized and inevitably replicated, the American public deserves to hear those answers clearly.

I spent 15 years at the Office of Management and Budget in the deep machinery of federal budgets and spending—what’s allowed, what isn’t, and why those boundaries exist. I was a trial attorney at the Justice Department.  And I served as the IRS Commissioner after the breach occurred and was responsible for using newly enacted resources to prevent this type of leak from happening again.

Despite having expertise in all of these areas, I have a lot of questions and none of the answers.

Danny Werfel has twice served as IRS commissioner, most recently from 2023 to 2025. He is now executive in residence at the Johns Hopkins School of Government and Policy and a distinguished fellow at the Polis Center for Politics at Duke University, writing about the intersection of tax and policy.

Read More By All Accounts