Trump’s Power to Sue US Challenged in $10 Billion IRS Case (1)

President Donald Trump has been given a deadline of next week to respond to claims that his $10 billion lawsuit against the Internal Revenue Service poses a glaring conflict of interest, setting up an early flash point in the historic case.

The president’s lawyers can respond by Feb. 25 to a group of former government officials who say that the lawsuit seeking damages for the illegal leak of his tax information sets up Trump to unfairly control both sides of the case. They note that as president, he has authority over the IRS as well as the US Justice Department, which defends the government in lawsuits.

Neither Trump nor the Justice Department has offered a detailed explanation of how the apparent conflict of interest could be addressed. That means a filing by the president — or the DOJ — could be the first look at how the government will respond to claims that the case is potentially “collusive.”

Earlier this month, the former government officials asked a judge to consider appointing them — or some other independent third party — to participate in the case to provide balance, and to weigh putting the case on hold until Trump leaves office. They’re also seeking to strike Trump’s demand for $10 billion from the court record, saying it’s completely unjustified.

Since his return to office, Trump has pushed the limits of executive authority, from imposing tariffs and withholding federal funds to calling on the Justice Department to prosecute his perceived political enemies. Yet the IRS suit, which also named the US Treasury as a defendant, stands out in Trump’s use of presidential power in court — positioning himself on both sides of a legal fight with $10 billion in taxpayer money on the line.

‘Obvious’ Conflict

“Unlike many of his lawsuits, this one actually has a core of merit,” said Eric Freedman, a constitutional law professor at Hofstra University, referring to the IRS leak. Yet the conflict of interest is “obvious,” he said, because Trump could “just order the IRS to cut a check.”

When asked about the potential conflicts posed by the suit, the Justice Department issued a statement: “In any circumstance, all officials at the Department of Justice follow the guidance of career ethics officials.” The DOJ’s formal response to Trump’s lawsuit in court could come any time in the next two months.

The White House didn’t respond to requests for comment on the case, which Trump filed in a Florida federal court Jan. 29.

The president has also filed other suits against financial firms and media companies that altogether are seeking tens of billions of dollars in damages.

The IRS data leak at the center of the case was a significant blow to the agency. A former IRS contractor, Charles Littlejohn, pleaded guilty in 2023 to stealing tax records for thousands of wealthy Americans, including Trump, Ken Griffin, Elon Musk and Jeff Bezos, and leaking them to news organizations. Littlejohn was sentenced to five years in prison.

Using the leaked data, the New York Times published areport on Trump’s tax returns weeks before the 2020 presidential election, which he lost to Joe Biden. The paper reported Trump paid $750 in federal income taxes in 2016 and 2017, and no taxes in 10 of the previous 15 years, because of large losses that offset any profits.

“It’s an extraordinary case because of the scope of the leak by Littlejohn,” said Nina E. Olson, who served as the independent national taxpayer advocate at the IRS from 2001 to 2019. “It was a gross violation of taxpayer rights.”

Trump’s lawsuit cited the Privacy Act to justify his claim for $10 billion, demanding payment for each disclosure by third parties, including the Times, ProPublica and “many additional print, broadcast, cable, social media and other platforms.” He’s also seeking damages under a separate tax law.

‘Settlement With Myself’

The president has already acknowledged he’s in a unique position to win a payout because he is the head of the government. “I’m supposed to work out a settlement with myself,” Trump told reporters when asked about the case Jan. 31 on Air Force One, according to a video posted on the White House’s YouTube page. The president said he’d donate any money he gets to charity, though taxpayers would foot the bill.

In a Feb. 5 court filing, a group of former IRS officials and tax experts said Trump’s “collusive litigation threatens the integrity of the judicial process by risking the court’s entanglement in an illegitimate proceeding.”

The group, which includes ex-IRS Commissioner John Koskinen and former Assistant Attorney General for the Tax Division Kathryn Keneally, argued the suit should be put on hold until Trump leaves office in January 2029, to ensure fairness and avoid any question about the US failing to “zealously defend” the public interest.

Proving Harm

That’s not the only potential problem. They claim Trump filed his suit after a two-year statute of limitations for such cases and that he can’t prove he or his family suffered any quantifiable harm from the tax-records leak to justify his $10 billion damage claim.

“It didn’t do him any political damage,” said Frank Agostino, an attorney at the tax law firm Kostelanetz LLP who isn’t involved in the case. “His net worth has gone up, not down. Can he articulate any business deal that he lost as a result of the disclosure?”

In a separate filing, the nonprofit Citizens for Responsibility and Ethics in Washington argued that any payment of public funds to Trump through a “nakedly collusive award” would violate what’s known as the “emoluments clause” of the Constitution. The clause bars the president from receiving public funds beyond their salary and was intended to limit the risk of official corruption.

“President Trump is asking his own administration to award him a massive windfall payment of taxpayer funds to settle legally and factually dubious claims, contrary to how the government has defended similar suits,” CREW said in the Feb. 12 filing.

Griffin Settled

Under Biden, the Justice Department argued against a suit filed in 2022 by Griffin over private tax data leaked by Littlejohn to ProPublica, which used the information on stories about how wealthy people avoid taxes.

A judge ruled the billionaire Citadel founder had failed to sufficiently allege the damages element of his claim, but allowed Griffin to pursue his claim that the IRS unlawfully disclosed his tax information. Griffin settled the case two months later. The IRS apologized but paid no money. The agency also agreed to create more safeguards.

Under Trump, the Justice Department has continued to vigorously fight claims for damages over the IRS leak. The government is seeking dismissal of a class action suit filed by multiple companies impacted by the leak, saying in court filings last year that the US isn’t liable for the actions of a contractor.

That argument is now diametrically opposed to Trump’s arguments in his lawsuit, which says the IRS is liable for Littlejohn’s actions. Critics of Trump’s lawsuit say any change of position by the Justice Department now would be a clear sign of improper influence from the president.

Tax attorney Michael Burke of DarrowEverett LLP said the Justice Department won’t necessarily roll over and take Trump’s position right away. He said a judge would look at any settlement “very carefully” to see if it is fair.

“I certainly don’t see the IRS handing over exactly what he asked for 30 days into the case,” Burke said.

The case is Trump v. Internal Revenue Service, 26-cv-20609, US District Court, District of Southern Florida (Miami).

(Updates with details on Griffin ruling and attorney comment.)

To contact the reporters on this story:
Erik Larson in New York at elarson4@bloomberg.net;
David Voreacos in New York at dvoreacos@bloomberg.net

To contact the editors responsible for this story:
Ben Bain at bbain2@bloomberg.net

Steve Stroth, Anthony Aarons

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