What happened

Lawyers for President Donald Trump and the IRS told a federal court on Friday that they are in active settlement negotiations over a $10 billion lawsuit stemming from leaked tax records.

The two sides filed a joint motion requesting a 90-day pause in proceedings to allow talks to continue. The case has moved unusually quickly for a lawsuit of this size and complexity.

Why it matters: if the government agrees to a settlement, it would be paid from public funds. The amount dwarfs any previous payout related to a government data breach and has drawn sharp criticism from congressional Democrats.

The background

Trump, his two eldest sons Donald Jr. and Eric, and the Trump Organisation filed the lawsuit in January 2026. They allege the IRS and the Treasury Department failed to protect their confidential tax information from theft.

The leak was carried out by Charles Littlejohn, a contractor at the IRS who stole the tax records of Trump and thousands of other wealthy Americans, including Jeff Bezos and Elon Musk, in 2019 and 2020. Littlejohn pleaded guilty and was sentenced to five years in prison in 2024.

The stolen records were provided to The New York Times and ProPublica, which published reports detailing how Trump paid minimal federal income tax for several years.

The debate

Supporters of the lawsuit argue that the government had a duty to safeguard confidential taxpayer information and that the breach caused real harm. Trump’s legal team contends that the leak was politically motivated and that the IRS’s failure to prevent it was negligent.

Critics, including Senators Ron Wyden and Elizabeth Warren, call the lawsuit an attempt to “steal $10 billion from taxpayers.” They argue that the government already identified, prosecuted and imprisoned the person responsible. Any settlement, they say, would reward the president at the public’s expense for a breach that has already been addressed through the criminal justice system.

What happens next

The 90-day negotiation window means any settlement announcement could come as late as mid-July. If talks fail, the case returns to active litigation.

The lawsuit’s outcome could set a precedent for how the government handles liability when contractors breach data security. It could also test whether a sitting president can extract a financial settlement from an agency he controls.