Presidential Influence Complicates IRS Defense Against Trump

The road to victory in President Donald Trump’s lawsuit against Treasury and IRS over an historic leak of billionaires’ tax data likely will hinge on whether the contractor responsible is considered an agency employee—if the government treats the president as a typical taxpayer.

Trump, his sons Donald Jr. and Eric, and the Trump Organization are suing the agencies for at least $10 billion over the data breach that resulted in multiple news reports detailing Trump and other wealthy Americans’ tax returns.

The suit entangles Justice Department attorneys in an ethical landmine. Trump’s Attorney General Pam Bondi has delivered on the president’s threats to go after his perceived personal enemies, and the president has broadly reshaped DOJ around his priorities. At the same time, the president controls the IRS and Treasury.

“It’s up to the government to protect the fisc. He’s the head of the government, and theoretically he decides whether or not to settle. It’s the ultimate conflict of the interest,” said Frank Agostino, a tax controversy partner at Kostelanetz.

The government’s defense could mirror what it argued in a case brought by billionaire Ken Griffin, another whose data was leaked. The hedge fund manager settled with the IRS giving him a public apology in 2024.

Former Booz Allen Hamilton contractor Charles Littlejohn is serving a five-year prison sentence for the data breach. The Trump Organization sought to intervene in Littlejohn’s appeal for a lighter sentence, but a judge in December deferred allowing the motion. Booz Allen is facing multiple lawsuits because of the leak.

The IRS didn’t respond to request for comment.

Michael Bloomberg was among those affected by the leaks. Bloomberg Law is operated by entities controlled by Bloomberg.

Government Defense

The question of whether Littlejohn could be considered an IRS employee was a central to the Griffin case and will likely reemerge in Trump’s case, tax controversy lawyers said. The court denied the government’s motion to dismiss in Griffin’s case, leaving the employment issue open.

The government may have a sovereign immunity argument under Section 7431, because the government can’t be sued if a non-government actor caused the violation, said Gil Rothenberg, former chief of the DOJ Tax Division appellate section.

The Trump lawsuit also will have to survive a potential statute of limitations problem. The limit for Section 6103 violations of privacy is two years “after the date of discovery by the plaintiff,” according to the law. The complaint argues that the clock starts after Trump received a letter from the IRS in 2024 officially revealing the leak. The New York Times reported on his tax returns in 2020.

Trump’s argument that the reputational harm of the data breach caused massive economic damages will be hard to prove, said Melissa Wiley, a tax controversy partner at Kostelanetz.

But Trump’s sway over DOJ will make it hard for career attorneys to argue those points. The DOJ could ask the court to appoint an independent counsel to prevent conflicts of interest, but the Trump administration is unlikely to do that, Agostino said.

“Nobody is going to move to dismiss who wants to keep their job,” Agostino said.

Privacy Pressure

The IRS has faced years of criticism over the Littlejohn leak—one of the most notorious data breaches in the agency’s history.

It wasn’t until four years after the breach that the more than 400,000 taxpayers affected were told their information had been compromised.

Taxpayer privacy issues since then have catapulted into the spotlight.

Hunter Biden, who was in the midst of an investigation into his taxes, sued the IRS in 2023, alleging agents unlawfully released his tax returns to Congress and news outlets, putting his father, former President Joe Biden, in a similar ethical position. Biden dropped his lawsuit in 2025.

Taxpayer privacy controversies have escalated in the first year of Trump’s second term.

A member of billionaire Elon Musk’s so-called efficiency department early last year sought unlimited access to taxpayer data, drawing concerns over how broad and the purpose of such access.

The access was ultimately pulled back. The IRS and the Department of Homeland Security last April entered into a data-sharing agreement to assist the Trump’s administration’s deportation effort. The move, which sparked top officials at the IRS to leave, hit an impasse after a federal judge in November placed a hold on the information sharing.

Democrats and other critics have noted that history.

“President Trump and his political appointees have strained and broken the laws protecting taxpayer privacy that the President is now invoking to try to enrich himself,” NYU Tax Law Center Executive Director Chye-Ching Huang said in a statement.

The president’s suit sends an important message that the IRS should be held accountable on taxpayer privacy issues, said Pete Sepp, president of the National Taxpayers Union, a nonprofit advocacy group, adding that it’s an uphill road ahead.

“No taxpayer has it easy when it comes to suing the IRS and trying to recover damages,” Sepp said.