Trump IRS Lawsuit Backfires as Judge Exposes $1.8B Scheme and Threatens Lawyer Todd Blanche With Sanctions

A federal judge has torn apart President Donald Trump's own lawsuit, ruling he built it in bad faith to buy himself immunity from the taxman. The 56-page opinion, issued Monday by US District Judge Kathleen Williams in Miami, voids the settlement Trump struck with the Internal Revenue Service in May and refers his acting Attorney General for professional discipline.

It marks a rare judicial rebuke of a sitting president's use of the federal courts, delivered two days before that same official, Todd Blanche, faces a Senate confirmation hearing.

A Lawsuit Turned Self-Dealing Settlement

Trump filed the underlying case in January, suing the IRS and Treasury for $10bn (£7.8bn) over the leaked disclosure of his tax returns. The leak was traced to Charles Littlejohn, a former IRS subcontractor who pleaded guilty in 2024 and was sentenced to five years in prison.

Rather than litigate, Trump's attorneys withdrew it days before a scheduled court filing. Blanche then announced a settlement establishing what the administration called an 'anti-weaponisation fund', alongside a memorandum shielding Trump, his sons, and his businesses from IRS audits over past tax filings.

Judge Williams, an Obama appointee, said the manoeuvre could not be separated from Trump's official role. 'The Court declines to adopt or accept the credulous exercise of divorcing President Trump's current job title from an understanding of what happened here,' she wrote, noting he has direct authority over the Justice Department, Treasury, and IRS he was ostensibly suing.

The $1.776bn 'Branding Effort'

Williams reserved particular scorn for the fund's size and purpose. It totalled $1.776bn (£1.4bn), intended to compensate people who claimed they had been unfairly targeted by federal prosecutors. 'Even the Fund amount $1.776 billion, speaks of a 'branding' effort rather than a deliberate and thoughtful calculation of damages,' she wrote.

The fund collapsed within weeks under bipartisan pressure, after lawmakers warned it could be used to compensate individuals convicted of attacking the United States. Blanche told Congress last month the fund was dead, but has since refused a judge's request to confirm that in writing.

Williams found the arrangement unlawful. She wrote that 'acquiescing to any such demand is wholly incompatible with the duties of DOJ attorneys' and said the immunity memo 'directly contravenes' a federal statute barring executive officials from influencing tax audits. Her order strips Trump of the audit protection he had operated under for two months.

Sanctions, Bar Referrals, and a Timing Problem for Blanche

Williams barred all parties from citing the 'settlement agreement' in any future judicial or official proceeding, functionally voiding it. She ordered monetary sanctions to be paid to the group of retired federal judges whose petition prompted her review, and imposed non-monetary sanctions on the private lawyers who filed the suit.

Trump's outside attorney, Alejandro Brito, was referred to the Florida Bar for possible disciplinary proceedings. A second lawyer was barred from appearing in the Southern District of Florida for one year.

The judge went further, directing that her opinion be forwarded to bar associations in New York and Washington, DC, where complaints are already pending against Blanche and Associate Attorney General Stanley Woodward. In a footnote, Williams said she was 'extremely troubled' by Blanche's May congressional testimony, in which he claimed the court had no role reviewing the settlement.

A Ruling That Lands Just Before Confirmation

The ruling lands two days before Blanche appears before the Senate Judiciary Committee for his confirmation hearing to become permanent Attorney General, handing Democrats fresh ammunition just as his nomination reaches its most consequential stage.

Attorneys for the retired judges who brought the challenge called the decision a 'resounding victory for the rule of law'. Trump's legal team did not directly address the ruling, saying only that the president 'continues to hold those who wrong America and Americans accountable'.

The IRS itself is unlikely to act on the reopened audit question while Trump remains in office, with his term not expiring until January 2029. But Williams' order strips away the legal shield he had relied on since May, leaving a presidential lawsuit dismantled by the very court it was designed to manipulate.