Lawyers for Donald Trump and the Internal Revenue Service are in discussions to settle a $10bn lawsuit over the leaking of tax return data.
A joint filing in a US federal court has asked for a 90-day pause in proceedings to allow time for negotiations. The United States Department of Justice, which represents the IRS, has not commented publicly.
At the same time, the case is facing a legal challenge that could determine whether it proceeds at all.
Leak of tax records
The dispute centres on the actions of former IRS contractor Charles Littlejohn, who shared confidential tax information with media organisations.
The data, published in 2020, revealed details about the tax affairs of several high-profile individuals.
Littlejohn later admitted to unlawful disclosure of tax information and was sentenced to five years in prison.
Trump and other plaintiffs, including family members and business entities, say the leaks caused financial harm and damaged their reputations.
Judge questions legal basis
A US federal judge, Kathleen Williams, has raised questions about whether the lawsuit meets the constitutional requirement for a valid legal dispute.
Under US law, courts can only hear cases where there is a genuine conflict between opposing parties.
Judge Williams noted that Trump, as president, has authority over the agencies he is suing, raising doubts about whether the parties can be considered sufficiently independent.
A hearing has been scheduled for 27 May, with both sides asked to submit legal arguments in advance.
Questions over government roles
The case has drawn attention to how different parts of the US government interact.
The IRS and the Treasury are part of the executive branch, while the United States Department of Justice is responsible for defending federal agencies in court.
All ultimately fall under presidential authority, creating an unusual situation in which a sitting president is pursuing legal action against his own administration.
Potential cost to taxpayers
Any financial settlement in the case would likely be paid from public funds, meaning taxpayers could bear the cost.
The case therefore raises broader questions about accountability when sensitive government data is mishandled.
Trump has said he would donate any damages awarded to charity.
Wider implications for data security
The case highlights ongoing concerns about the protection of taxpayer information.
Tax authorities rely on large volumes of sensitive data, making security and access controls critical.
For policymakers and tax professionals, the situation underlines the importance of:
- Strong safeguards around taxpayer data
- Effective oversight of internal access
- Clear accountability in cases of data breaches
It also reflects a wider challenge faced by tax systems globally: balancing the use of data for enforcement with the need to protect confidentiality.