Judge rules Trump acted in bad faith in $10B IRS lawsuit

A federal judge ruled that President Donald Trump and his family acted in bad faith when they filed a $10 billion lawsuit against the Internal Revenue Service, referring one of Trump's lawyers to state bar authorities for potential discipline and opening the door to monetary sanctions.

"The nature of the suit itself and the conduct of the Parties and counsel from its filing make plain that this was an attempt to use the Court to provide some legitimacy to an agreement to confer immunity to people and entities affiliated with the President," U.S. District Judge Kathleen Williams wrote in her 56-page order Monday. "This was an attempt to use the Court to provide some legitimacy to an agreement to confer immunity to people and entities affiliated with the President and to earmark billions of dollars from American taxpayers."

The ruling stems from a January 2026 lawsuit Trump filed against the IRS and Treasury Department after Charles Littlejohn, an IRS contractor, illegally leaked Trump's tax returns to the New York Times and ProPublica. Littlejohn pleaded guilty to a felony and is serving a federal prison sentence.

Rather than contest the lawsuit, the Justice Department — an agency under Trump's control — reached a settlement in May that created a $1.776 billion "anti-weaponization fund" and granted Trump, his family and his businesses immunity from past tax audits. The administration later abandoned the fund after bipartisan backlash from lawmakers, including Republicans concerned it could compensate Trump supporters who stormed the Capitol on Jan. 6, 2021. The no-audit promise, however, has remained intact, according to the Wall Street Journal.

Williams referred Trump's attorney Alejandro Brito to the Florida Bar for disciplinary review. She also ordered copies of her ruling sent to the State Bar of New York, where Acting Attorney General Todd Blanche is a member, and the District of Columbia Bar, where Associate Attorney General Stanley Woodward is a member. Blanche faces his Senate Judiciary Committee confirmation hearing Wednesday.

The judge barred Trump and his associates from citing the purported settlement agreement in any judicial, administrative or regulatory proceeding as evidence of a legitimate resolution. She also opened the door to monetary sanctions covering attorneys' fees incurred by outside parties who intervened in the case.

Williams found that Trump effectively controlled both sides of the litigation, writing that "the Lead Plaintiff and the Government are one, a fully realized unitary interest." She noted that the Justice Department had valid defenses available — including that the lawsuit was filed too late and that the government couldn't be sued because Littlejohn worked for a contractor — but chose not to pursue any of them.

"The DOJ, which is tasked with enforcement of United States law, has remained conspicuously absent and silent when serious questions about this matter have been raised," Williams wrote.

Retired federal Judge John Jones III, one of 35 former judges who asked Williams to reexamine the case, called the ruling "a scorching condemnation of what Judge Williams clearly finds to be a considerable and unprecedented abuse of the federal judicial process."

A spokesman for Trump's legal team said the IRS "wrongly allowed a rogue, politically-motivated employee to leak private and confidential information about President Trump, his family, and the Trump Organization." Trump "continues to hold those who wrong America and Americans accountable," the spokesman added.

The ruling creates immediate political risk for Blanche's confirmation. His testimony before the Senate Judiciary Committee is scheduled for Wednesday, and Williams pointed to his June congressional testimony — in which he revealed the anti-weaponization fund was no longer moving forward — as evidence that a single party controlled both sides of the case. "Acting Attorney General Blanche's apparent capacity to speak for both Plaintiffs and Defendants, sign a 'settlement' document on behalf of all Parties to this action, and then repudiate part of that agreement, demonstrates that there was only one party whose interests were being represented throughout this case," she wrote.

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