U.S. District Judge Kathleen Williams has blown up Donald Trump’s settlement with the IRS, finding that the case did not belong in federal court because Trump, as president, effectively controlled both the plaintiffs’ side and the government defendants.
In a 56-page ruling, Williams said the lawsuit was not an ordinary dispute between opposing parties. Trump, Donald Trump Jr., Eric Trump and the Trump Organization sued the IRS and Treasury Department over leaked tax information, seeking at least $10 billion. The leak involved tax records of thousands of wealthy Americans, including Trump; the contractor responsible was caught, convicted and is serving a sentence, according to the case record described by the court.
The problem, Williams found, was not that Trump lacked a grievance about the leak. It was that he filed the case while sitting in the White House, against agencies inside the executive branch, and then had Justice Department officials resolve it on terms that benefited him, his family and political allies.
The purported deal included a $1.776 billion “Anti-Weaponization Fund” and an agreement that the IRS would not pursue Trump, his companies or his family for past tax-code violations, according to the ruling. Williams concluded that the parties used the court process to dress up an arrangement that had “no viable basis in law or fact.”
No real adversaries
Federal courts need an actual case or controversy. Williams said that requirement was missing because the IRS and Treasury answer to the president. She cited Trump’s own arguments in a recent Supreme Court case, Trump v. Slaughter, where his administration pressed a broad view of presidential control over executive agencies.
Williams pointed specifically to Treasury Secretary Scott Bessent, also acting IRS commissioner, and IRS chief executive Frank J. Bisignano as officials subject to presidential supervision. Her point was blunt: Trump could not argue elsewhere that agency heads must be controlled by the president, then tell her court that those same agencies were genuinely opposing him.
The judge also compared the government’s conduct in Trump’s case with another case involving similar allegations against the IRS and Treasury. In that matter, the government challenged the complaint, raised defenses and denied allegations. In Trump’s case, Williams said, the docket was quiet and the government skipped basic litigation moves that would be expected from a defendant trying to win.
Lawyers under scrutiny
Williams was sharply critical of the lawyers who signed or handled the settlement. Daniel Epstein, a former White House lawyer for Trump, signed for the plaintiffs despite never becoming counsel of record in the case, according to the ruling.
On the government side, the agreement was signed by Acting Attorney General Todd Blanche and Associate Attorney General Stanley Woodward Jr. Williams noted that Blanche had previously represented Trump in criminal matters, while Woodward had represented people tied to January 6 cases and Walt Nauta, Trump’s personal aide and co-defendant in the Mar-a-Lago classified-documents case.
The judge said Florida ethics rules raise conflict concerns for government lawyers dealing with matters that may benefit former clients. She also cited a Justice Department statement saying Blanche was recused from ongoing matters where he had previously represented someone, then noted that he did not recuse here.
Williams also rejected Blanche’s explanation that the settlement could not be submitted for judicial review because the case had already been dismissed. The court said that answer was, at best, misleading: Blanche could have appeared and asked for relief if he believed review was needed.
The ruling further said the tax-relief portion of the deal could raise constitutional problems under Article II’s emoluments provision, which bars a sitting president from receiving additional compensation or benefits from the United States while in office.
Williams also treated Blanche’s later statement to Congress that the anti-weaponization fund was dead as evidence that the sides were not separate. If the agreement were real, one party could not unilaterally rewrite it. His ability to speak for both sides, the judge said, supported the conclusion that only one interest was represented.
Williams reopened the case after former federal judges urged the court to examine whether it had been misled. Her ruling sanctions the lawyers involved and refers some of them to bar authorities for possible discipline, according to the court.
This story draws on original reporting from Techdirt.