Federal judge reopens Trump's $10 billion IRS lawsuit citing possible misconduct and fraud claims

A federal judge in Miami has reopened President Donald Trump’s $10 billion lawsuit against the Internal Revenue Service (IRS), marking a sharp reversal after the case had been voluntarily dismissed last week. Judge Kathleen M Williams said she wanted to examine ‘grievous allegations’ that the settlement process may have been ‘premised on deception’, raising serious questions about how the case was resolved.

The decision represents a setback for both Trump and the Justice Department, which had recently announced a settlement agreement that created a $1.8 billion compensation fund for individuals claiming harm from alleged government ‘weaponization’ under Democratic administrations. The agreement also reportedly provided significant tax-related benefits to Trump, his family, and their businesses.

Judge Williams acted after a group of 35 former federal judges filed court papers urging her to reinstate the case and investigate the circumstances surrounding the settlement. They argued the deal raised concerns about Trump’s candor toward the court and manipulation of the judicial system. Before dismissing the case, Williams, an appointee of former President Barack Obama, had already questioned whether the lawsuit created a valid legal dispute, noting Trump was effectively on both sides of the action.

Also Read: US and Cuban military officials meet at Guantanamo Bay amid escalating tensions

At the time, she said there was no settlement of record, though the Justice Department later released documents finalising the agreement. In her order, Williams said she would investigate whether the court had been misled and whether the settlement process improperly bypassed judicial scrutiny. She also directed Trump’s legal team to explain whether the lawsuit should be formally reopened because the court was the victim of fraud.

The judge further questioned whether Trump may have coordinated with his own administration to settle the case to avoid judicial scrutiny. The White House did not immediately respond to requests for comment. Judge Williams referenced reporting by The New York Times indicating that the IRS had prepared a detailed 25-page defense memo that was never used in court, despite potential legal arguments against the lawsuit. Legal representatives for the former judges praised the ruling.

“The judges and their counsel greatly appreciate the seriousness with which the court is addressing these grievous allegations,” said Norman Eisen, who represents the group through the Democracy Defenders Fund. “We stand ready to work with the court as it investigates this matter.” The former judges, working alongside the law firms Platkin and Susman Godfrey, argued that Trump improperly used the lawsuit to secure unlawful private benefits and create a taxpayer-funded compensation structure without congressional approval.

They also accused him of attempting to short-circuit judicial oversight by rushing the settlement process. The $1.8 billion fund has already faced legal challenges, including a temporary block by a federal judge in Virginia who halted further implementation or payments. Lawmakers from both parties have also raised concerns over the structure and legality of the program. Trump, along with members of his family and business entities, filed the original lawsuit in January, claiming damages of at least $10 billion over the unauthorized disclosure of tax records by former IRS contractor Charles Littlejohn during Trump’s first term.

The lawsuit alleged the IRS failed to prevent the leak, which involved documents later published by The New York Times and ProPublica. However, legal experts have noted several weaknesses in the case, including possible statute of limitations issues and questions over whether the IRS can be held liable for the actions of an independent contractor. Critics also argue that the Justice Department never fully defended the case in court, raising concerns that the settlement may have been structured to benefit Trump politically and financially.

In a footnote, Judge Williams questioned whether provisions granting audit protections to Trump and his businesses may exceed DOJ authority. She also noted procedural irregularities, including which officials signed different parts of the settlement agreements. The court has ordered Trump’s legal team to respond by June 12 on whether the case should be reopened and whether the court itself was misled during the settlement process.