A Federal Judge Voided the Trump-IRS Settlement: A Breakdown of Her Findings of “Collusion” and “Bad Faith”
Introduction
What began as a $10 billion shakedown under the guise of a lawsuit has led to a judicial reckoning. On July 13, 2026, U.S. District Judge Kathleen Williams affirmed what critics and analysts had been saying for months: Donald Trump’s massive lawsuit against the IRS was a stage-crafted exercise in executive self-dealing, designed to manufacture judicial cover for an unlawful giveaway. In a 56-page order, Judge Williams not only voided the settlement, she said the lawsuit itself was filed in bad faith. She noted that the president controlled both sides of the litigation, that government lawyers never appeared to contest the case, and that the “settlement” was nothing more than collusion dressed up as adversarial litigation. The court’s decision effectively nullified the settlement’s tax-immunity and liability-releasing provisions, referred Trump’s attorneys to disciplinary authorities, barred the administration from ever citing the agreement again, and left the door open for further sanctions.
No Case, No Controversy, No Settlement
Judge Williams’ central finding tracks the nonparty brief submitted by Democracy Defenders Action on behalf of 35 former federal judges. Applying Article III of the U.S. Constitution, Williams found that President Trump, as head of the executive branch, controlled both sides of the suit. The judge’s order states, “There was never adverseness between the Parties; there was never a case or controversy; and there was never a question as to who would prevail” (p. 56). The court found that Treasury Secretary Scott Bessent, IRS CEO Bisignano, and the DOJ litigators nominally defending the government were all bound to advance no legal position “that contravenes the President” (p. 26). In fact, government lawyers never showed up to contest the case in its 109 days in court.
Judge Williams also found that the plaintiffs brought the suit “for an improper purpose — to gain the imprimatur of judicial legitimacy for a ‘settlement’ that had no viable basis in law or fact.” (p. 38). Under a Rule 11 sanctions analysis, Williams advanced DDA’s position that the case was “premised on deception” and that the court itself may have been “the victim of fraud.” The plaintiffs, she wrote, acted in bad faith by “collusively filing a lawsuit with claims subject to multiple dispositive defenses solely to provide cover for a collusive settlement.” She added simply, “The Court agrees” (p. 43).
Invoking language from a prior ruling in the district, Williams observed, “this case is part of Mr. Trump’s pattern of misusing the courts to serve political purposes” (p. 38). She summarized the entire scheme as the plaintiffs having “pursued this lawsuit in bad faith for the improper purpose of dishonestly advancing a political narrative” (p. 42).
The Administration Is Talking Out of Both Sides of its Mouth
The ruling sharply criticizes the government’s lack of credibility. Noting that the plaintiffs “say the quiet part out loud” in their brief, Williams concluded that the collusive settlement was always the goal:
“Whether Executive Branch actors can privately agree to give themselves and their former clients blanket immunities and billions of dollars in tax monies for legally undefined grievances was never an issue advanced to the court. The question is whether the parties could do so by claiming to be adverse and engaging the legitimacy of a court proceeding. The answer is a resounding “no”: the Lead Plaintiff and the Government are one, a fully realized unitary interest” (p. 37).
Williams also highlighted acting Attorney General Blanche’s announcement to Congress that the fund was “not moving forward, period” even though Trump never agreed to drop the fund. She wrote that Blanche’s willingness to do this “demonstrates his confidence that he could speak for, and bind, both sides of this matter,” finding it to be further evidence that two genuinely adverse parties never existed (p. 36).
The Consequences
The order immediately nullifies the settlement’s tax-immunity and liability-releasing provisions. Additionally, Williams barred Trump and the federal government from citing or relying on the “purported ‘settlement agreement’” as evidence in any judicial, administrative, regulatory, or arbitration proceeding going forward (p. 47). This directly undercuts the one-page release Blanche’s office quietly posted on May 19 purporting to shield Trump, his family, and “related or affiliated” entities from IRS audits and other legal liabilities.
Having found bad faith, Williams also imposed non-monetary sanctions under Rule 11 and signaled that monetary sanctions may follow under the court’s inherent authority. She also took several disciplinary actions. She referred Trump’s attorney of record, Alejandro Brito, to the Florida Bar. She barred co-counsel Daniel Epstein — a former White House Associate Counsel who signed the settlement despite never having formally appeared in the case — from admission in the Southern District of Florida for one year. She also directed the clerk to send copies of the order to the New York and D.C. bars, where disciplinary complaints against Blanche and Associate Attorney General Stanley Woodward had already been filed.
Judge Williams reserved the “fraud on the court” question under Rule 60(d)(3) for a later date (p. 38 fn 59). Parallel challenges are pending in the Eastern District of Virginia and the District of Columbia. Those courts now have Williams’ formal finding, on the record, that the entire arrangement was collusive, brought in bad faith, and designed to dishonestly advance a political narrative under the cover of judicial legitimacy.
