Judge Criticizes Trump IRS Settlement, Refers Attorney for Potential Discipline

Why it matters locally: While the immediate impact of this federal ruling is on the individuals and agencies involved, the broader implications regarding IRS audit processes and the conduct of government attorneys could set precedents that affect federal tax administration nationwide, including for taxpayers in South Dakota.

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Washington D.C. — A federal judge has criticized a 2020 settlement agreement between the Internal Revenue Service (IRS) and former President Donald Trump, citing an "improper purpose" for the initial lawsuit. Judge Florence Y. Pan of the U.S. Court of Appeals for the D.C. Circuit on Monday referred a Justice Department attorney involved in the case for potential disciplinary proceedings. The judge's order vacated the settlement, which pertained to Trump's tax audit for the years 2010 through 2018. The original lawsuit, filed by Trump against the IRS in July 2020, challenged the agency's practice of automatically auditing presidential tax returns. The lawsuit claimed the IRS had not initiated an audit of Trump for the years 2015 and 2016. However, evidence presented in court indicated that the IRS had, in fact, commenced audits for Trump's 2015 and 2016 tax returns shortly after he filed the lawsuit. The government then settled the case less than two weeks later. The settlement agreement included a clause stating that Trump's tax returns for all years he served as president were deemed fully audited, granting him immunity from further audits for those periods. It also included a $1.8 million tax refund. Judge Pan stated that both the Justice Department and Trump's legal team engaged in "misconduct" by using the courts to secure a settlement that effectively immunized Trump from audits during his presidency. She described the lawsuit as an "attempt to short-circuit the ordinary IRS audit process." The judge's ruling noted that the government did not notify the court of the ongoing audits at the time the lawsuit was filed and subsequently settled. She found that the lawsuit's primary objective was to obtain a "favorable settlement" and a "broad immunity from audit." Trump's lawyers argued that the audit policy for presidents was discriminatory, an argument the judge rejected. The judge's order applies to the Justice Department attorney who filed the motion to dismiss the lawsuit due to the settlement. The judge emphasized that the court's role is to resolve genuine legal disputes, not to facilitate agreements that circumvent established processes. The referral to the D.C. Bar's Board on Professional Responsibility will initiate a review of the attorney's conduct. A Justice Department spokesperson did not immediately comment on the judge's order.