Anti-Weaponization Fund

Trump's 'Anti-Weaponization Fund' could carry a big tax bill, some experts argue

Federal income tax experts tell POLITICO money from the DOJ's Judgment Fund, which the new $1.8 billion program is drawing on, is generally taxable.

By Bernie Becker

President Donald Trump isn’t supposed to directly profit from the dismissal of his lawsuit against the IRS.

And yet, he could still owe taxes on the money going to set up a central feature of that deal — the $1.8 billion “Anti-Weaponization Fund.”

Some tax practitioners say the way that the fund, which Acting Attorney General Todd Blanche announced May 18, is structured likely makes it an income tax liability for the president, potentially costing hundreds of millions of dollars.

The argument stems from the fact the Trump administration is setting up its new “anti-weaponization” initiative through the Treasury Department’s Judgment Fund, which Congress set up decades ago to automatically pay federal court settlements.

Payments from the fund can only be made to actual litigants, and proceeds from legal settlements generally are taxable, with an exception for compensation for medical injuries or sickness.

Senior administration officials and critics alike have said this is a particularly unusual use of the Judgment Fund, with little to no precedent for how the money setting up the “anti-weaponization” pool might be taxed. The White House referred questions to the Justice Department.

But effectively, a range of federal income tax experts said Trump appears to be the beneficiary of the $1.8 billion, even if the money is eventually routed to others through the five-person commission responsible for disbursing the fund.

“It’s unique and we haven’t really seen anything like this before,” said Lawrence Zelenak, a tax law professor at Duke University School of Law. “But I think the tax analysis is actually not all that complicated.” He added that Trump was “more likely than not” on the hook for taxes on the $1.8 billion.

Taxable for recipients

There are more potential tax consequences that could stem from setting up the new fund.

Payments from the fund, which officially totals $1.776 billion, could also be taxable for recipients, who could include people who participated in the Jan. 6, 2021 attack on the U.S. Capitol. Plus, Trump might face problems with the gift tax, which donors can face on large transfers of money or property.

It’s also possible the public never learns much about how those questions shake out, because they delve into individuals’ private tax matters.

But those consequences — and whether Trump would owe taxes on the fund at all — add yet another wrinkle to the debate over an agreement that’s unprecedented in many ways.

Trump and other members of his orbit are now also shielded from any pending audits or tax claims, raising further questions about how the IRS might decide who owes taxes on the money flowing from the Judgment Fund.

The settlement agreement’s language appears designed to close off any debate about whether or not the compensation fund creates a tax liability for Trump. One of the officials to sign off on it was Frank Bisignano, the IRS’s chief executive officer.

According to the agreement, the fund “does not represent the value of any current claim” by the plaintiffs in the case, which include Trump, two of his sons and the company overseeing many of the family’s business ventures.

Instead, the $1.8 billion “is based on the projected valuation of future claimants’ claims” under the “anti-weaponization” fund. By the administration’s rationale, that means the money flowing into the fund is “not taxable income as to Plaintiffs, who receive no economic benefit from this Settlement Agreement.”

Some experts are sympathetic to that argument. Andy Grewal, a tax law professor at the University of Iowa, said that the tax consequences of payouts from the fund would be the more pressing question.

Trump, Grewal said, “has no control over whom the money goes to, and so it would not be income to him.”

Other income tax experts were also hesitant to weigh in on whether beneficiaries of the “Anti-Weaponization Fund” would owe taxes on that money, without further details about how those payments are doled out.

Still, Brandon DeBot of the Tax Law Center at New York University said that it wouldn’t be unusual for settlement funds essentially to be taxed twice — first on the payment to a litigant, with further liabilities possible if money is then given to others.

Future audits

Democratic officials, both in Congress and blue states like New York and California, are pushing proposals that would place 100 percent tax rates on fund disbursements to anyone convicted in connection with the Jan. 6 riot.

But DeBot said any questions about how and whether those payments are taxable shouldn’t distract from Trump’s own liability on the $1.8 billion.

“Trump, his family, his business, and DOJ should not be able to turn off the consequences of the standard tax rules through their private agreement,” he said.

And because Trump’s protections are only for pending audits, it’s possible that the IRS could look into whether the president should or did count the $1.8 billion as taxable income at some point.

The agency usually has up to three years after a return is filed to initiate an audit, which opens the possibility that an IRS in the next presidential administration could examine Trump’s returns for 2026 and beyond.

“I don’t think there’s any way that this purported agreement not to audit the president can bind any later administration,” said Brian Galle, a tax law professor at the University of California, Berkeley.