Trump is moving toward settling his own $10 billion lawsuit against his own IRS, and his own appointees may have to approve the payout

President Donald Trump has requested a 90-day delay in the deadline for the Justice Department to file its response in his $10 billion lawsuit against the IRS. This move is buying time for officials dealing with the unusual situation of defending a lawsuit brought by the sitting president against his own administration. Lawyers for the president made the request, and government lawyers agreed to the delay.

This is a significant development because it signals that settlement talks may soon begin. If a settlement is reached, Trump-appointed officials could be required to approve a large payout to the president and his family. This creates an obvious conflict of interest inside the Justice Department, where government lawyers would normally defend federal agencies, but in this case, would be defending against a lawsuit filed by their own boss.

According to Mediaite, the lawsuit claims that the IRS and Treasury Department failed to stop the leak of Trump’s tax returns between 2018 and 2020 by former contractor Charles Littlejohn, who leaked thousands of tax returns, including Trump’s, to news organizations. Littlejohn was sentenced to five years in prison, the maximum sentence for his conviction, and his actions were clearly unlawful and a serious breach of taxpayer privacy.

Trump’s lawsuit comes as his administration quietly weakens the very privacy protections he claims were violated

Chye-Ching Huang, executive director of the Tax Law Center at NYU Law, writes on The Hill that all taxpayers should expect the IRS to protect their legally protected tax information, and the law gives taxpayers strong legal recourse when that trust is broken, including monetary damages. 

These privacy protections were put in place after President Richard Nixon famously tried to access taxpayer information to target his political enemies with tax audits. Following that, Congress passed laws with strong bipartisan support that strictly limited access to taxpayer information and imposed criminal penalties for unauthorized disclosures.

However, while Trump is pursuing this lawsuit over a privacy breach, his own administration has been weakening taxpayer privacy protections in other ways. This includes a large-scale tax data sharing agreement with the Department of Homeland Security for immigration enforcement, which could discourage people from filing their taxes and potentially cost more than $300 billion over a decade, according to estimates from the Yale Budget Lab,.

The IRS contractor at the center of this case, Littlejohn, also had ties to major government contractors, and how the Trump tax return leak connects to Booz Allen Hamilton sheds more light on the broader risks of relying on outside firms to handle sensitive tax data.

Trump’s administration has also targeted Harvard University’s tax-exempt status for political reasons and sought broad access to protected taxpayer information across multiple agencies for purposes well beyond tax administration. These actions have raised serious concerns about legal violations and further erosion of taxpayer privacy.

At the same time, the IRS has been significantly downsized, with a quarter of its employees leaving in less than a year. The Government Accountability Office found that the IRS has more trouble securing tax data when it is accessed by contractors, and fewer IRS employees means more reliance on outside contractors, the same type of contractor responsible for the original leak.

The latest government funding deal has also pulled back nearly $12 billion that was originally set aside to modernize the IRS’s IT systems, making it harder to strengthen data security. This is a major setback, as those resources, made possible by a 2022 surge of one-time funding, were meant to help robustly protect taxpayer privacy.

Meanwhile, concerns about financial oversight are not limited to government institutions, even everyday Americans are finding unexpected charges added to their bills, much like a family who discovered unauthorized charges on their restaurant bill after a dinner out. With IRS funds now cut, the reforms needed to secure taxpayer data become much harder to carry out.